Brexit Bulletin: ‘Bad News for Everyone’

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Theresa May did her best to avoid talking about Brexit at her party's annual conference, mentioning it only to attempt some conciliatory and reassuring words. But the divisions in her cabinet were on daily display.

May went into the annual gathering with a delicate balancing act to pull off: keep the party faithful onside without saying anything that European negotiators could interpret as backtracking on the concessions she announced in Florence.

So she spoke just 334 words on Brexit in a speech of more than 7,000. Her chief negotiator, David Davis, kept a low profile throughout, making headlines only by joking about imminent retirement.

May's main announcement on Brexit was that her government was preparing to leave the European Union without a deal if talks fail. That's a softening of her previous stance that “no deal is better than a bad deal,” but allowed the pro-Brexit camp to be reassured that she's still willing to walk away.

The fifth round of divorce talks starts Monday in Brussels, with the public divisions between cabinet ministers on show. Chancellor of the Exchequer Philip Hammond turned to businesses for support, urging them to help him make the case to skeptical colleagues that getting a transition deal is urgent. Foreign Secretary Boris Johnson drew criticism for his rebellious comments on Brexit, putting May on the spot for most of the week for her reluctance to put him in his place.

“If anyone in Europe was still wondering why the U.K.'s position develops at such an incredibly slow pace, the last days with Boris's red lines and all the scrutiny for May's unlucky speech provide the missing link,” said Carsten Nickel, managing director at Teneo Intelligence. “That the U.K. government is also considering a no-deal scenario is only consequential in that light.”

The good news for May is that while she emerged weakened, not just because her speech was marred by a prankster and an extended coughing fit, her likeliest rivals were also tarnished, write Rob Hutton and Tom Penny. Johnson's freelancing on Brexit irritated Tory lawmakers whose support he would need to become prime minister. When he made a flippant comment about dead bodies in Libya, calls to fire him grew louder. Davis and Home Secretary Amber Rudd both needed colleagues to go out and explain stories that emerged about their future intentions.

“It's a cabinet of midgets, pygmies and exploded volcanoes,” said Steven Fielding, professor of politics at Nottingham University. “It's bad news for everyone.”

Brexit Latest

Energy Hit | Brexit risks making energy more expensive, and companies are getting worried. The plunge in the pound has already boosted import costs and industrial-scale consumers are seeking reassurance that the split from Europe won't make it worse. Amid a perception that energy isn't high on negotiators' priority list, Ineos Group is considering making its own version of the Land Rover Defender car in Germany, where industrial power rates are 24 percent cheaper.

Tesco Woes | The supermarket beat earnings estimates and announced plans to restart dividend payments. But Britain's largest retailer said its domestic business “remains fragile” and it is holding prices despite the inflationary squeeze from the weak pound. It also cited a shortage of agricultural labor as the biggest challenge posed by Brexit.

Goldman Move | Goldman Sachs Group Inc. agreed to lease offices at a new building in Frankfurt as it seeks additional space ahead of Brexit. Goldman is considering post-Brexit scenarios that would see its staffing level in Frankfurt rise as much as fourfold from the current level of about 200, the firm's co-chief executive officer for Germany said last month. The final increase will depend on the outcome of Brexit talks. Here's where banking jobs are heading after Brexit.

Christmas Deadline | The Bank of England's head of supervision said a Brexit transition deal must be reached by the end of the year to provide assurance to financial firms as they prepare for life after the U.K.'s withdrawal.

Irish Plan B | Ireland has “fall back” positions in case the U.K. and European Union fail to agree a wide-ranging free trade agreement following Brexit, premier Leo Varadkar said on Wednesday. While he's determined to secure a customs union partnership and free trade agreement or area between the EU and Britain, the government is developing contingency plans “if things do not work out,” he told lawmakers.

On the Markets | The pound rose on Wednesday for the first time this week as investors focused on economic data that reinforced the case for a Bank of England rate hike.

And Finally...

If May was hoping other Europeans had bigger issues to grapple with this week than her party conference speech, the news is mixed. Germany's FAZ put her on its front page, pictured taking cough sweets from Hammond. Sueddeutsche Zeitung had her “fighting for her job” on page 1 while Die Welt had a cutting page 7 headline: “A prime minister dismantles herself.” 

Italy's Corriere Della Sera called it a “nightmare,” a theme also picked up online in France, though the French papers kept it off the front pages. The Poles didn't care much and the Spanish definitely had bigger to fish to fry.

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To contact the author of this story: Emma Ross-Thomas in London at erossthomas@bloomberg.net.

To contact the editor responsible for this story: Adam Blenford at ablenford@bloomberg.net, Andy Reinhardt