London will continue to attract global capital for property and investment despite the UK leaving the European Union, but the impact of Brexit depends on whether it will be “hard” or “soft”, one of Ireland’s leading economists said.
Frances Ruane was director of the Economic and Social Research Institute in Dublin from 2006 to 2015. She is a professor at Trinity College, Dublin and an adviser to the Scottish government on the implications of Brexit.
She is visiting Hong Kong to lecture at universities and other institutions on the impact of Brexit on the economies of Europe.
“The United Kingdom, and London in particular, will continue to attract investment in property after Brexit,” she said in an interview. “The UK has been a leader in global opening of the economy and one of its biggest beneficiaries. After it leaves the EU, the relationships have to be there.”
But there is uncertainty at present. “We do not know the legal outcomes. We do not know how different post-Brexit UK will be from what it is now. If it is a soft Brexit, the difference will not be much. But, if it is a hard Brexit, it will have more impact on investment. We have already seen the negative impacts of the referendum on the UK – lower investment and lower consumer spending because of the devalued pound,” she said.
Until now, London has been a magnet for global capital, from Hong Kong, mainland China, Russia, the Middle East, Africa and elsewhere. Every week the Hong Kong media carries advertising for UK properties, mainly London and also Birmingham, Manchester and Liverpool.
Each year this investment brings billions of pounds into the UK economy. But it has also helped to push housing prices to a level that a middle-class couple in London with two incomes cannot afford a place to live: and many apartments lie empty and unused because their owners live abroad. This has caused anger and resentment among the poor and middle class in the cities affected.
Another uncertainty for foreign investors is the policies of a Labour government led by Jeremy Corbyn. If the Brexit negotiations fail and the government of Theresa May falls, the Labour Party could win the general election.
Last June, Corbyn called for the empty homes of rich people in the London borough of Kensington to be seized for low-income residents of Grenfell Tower who had been left homeless by a fire; it killed 71 people and left hundreds homeless. “That is the biggest uncertainty of all,” said Ruane. “It is hard to know if Corbyn would moderate his position once he were in power.
“Some investors are looking elsewhere in Europe,” said Ruane. “Frankfurt and Berlin are booming and Paris’ economy is improving, in part because of Brexit. While London will remain a major financial market, banks will move some operations to other cities in the EU to ensure they have ‘passporting rights’.”
No member of the European Union is more affected than Ruane’s home country, the Republic of Ireland. The nature of the border between the Republic and Northern Ireland, part of the UK, is one of the most difficult issues to be resolved in the negotiations between London and Brussels.
“The border is 500 kilometers long and has 300 legally accepted crossings,” said Ruane. “It is impossible to police. It is the interests of both side to have a frictionless border and not criminality, like smuggling.” This would happen if there was a big divergence in prices between the two sides after Brexit.
On Monday, Michel Barnier, the EU’s top negotiator, visited Dundalk on the southern side of the Irish border to show his support for the Irish position that there must be no border.
Barnier told reporters during his visit that he was “not optimistic” and “not pessimistic” but “determined” that the two sides could break the current impasse on talks. He repeated recent declarations that, unless Britain came up with fresh thinking on how to avoid a hard border by the June EU council summit, further talks were in danger of collapsing.
Ruane said that the solutions proposed so far to solve this issue were not workable. “The phoney war is over,” she said.
The Democratic Unionist Party, the largest party in Northern Ireland, is insisting that the area be treated the same as the rest of the UK and strongly opposes putting the customs border in the Irish Sea, between Britain and Ireland. Prime Minister May relies on the 10 DUP members of the Westminster Parliament to remain in office; this gives them bargaining power far in excess of their number.
“From an economic point of view, Brexit does not make sense,” said Ruane. “But we must respect the democratic discourse.”
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