Please see below for a roundup of Brexit news from the last several days. Please let us know if you’d like to talk about any of this in further detail.

Key Developments:

  • Theresa May in as Prime Minster; George Osborne out as Chancellor; Boris Johnson named Foreign Secretary
  • New cabinet positions responsible for Brexit and trade negotiations
  • BoE holds interest rates steady
  • US economic forecasts predict minimal disruptions as a result of Brexit

UK:

  • Theresa May assumed the role of Prime Minister Wednesday evening after meeting with the Queen and announced an initial round of cabinet level changes:
    • Philip Hammond has been appointed Chancellor of the Exchequer (the UK’s finance minister), replacing George Osborne who was not given a new post;
    • Boris Johnson has been appointed Foreign Secretary, replacing Hammond in that role; and
    • Amber Rudd has been appointed Home Secretary.
  • May created two new cabinet level positions to negotiate and implement the UK’s withdrawal from the EU:
    • David Davis has been appointed Secretary of State for Exiting the European Union (the so-called “Brexit Secretary”); and
    • Liam Fox has been appointed Secretary of State for International Trade.
  • Earlier this week Davis suggested an aggressive time table for negotiating trade deals with non-EU countries and a hard line toward negotiations with the EU on immigration and tariff-free access to the Single Market. Davis’ view is that Article 50 should be triggered “before or by the beginning of next year.” In comments he wrote earlier this week, he stated:
    • “I would expect that the negotiation phase of most of them to be concluded within between 12 and 24 months. So within two years, before the negotiation with the EU is likely to be complete, and therefore before anything material has changed, we can negotiate a free trade area massively larger than the EU. Trade deals with the US and China alone will give us a trade area almost twice the size of the EU”.
    • “The ideal outcome, (and in my view the most likely, after a lot of wrangling) is continued tariff-free access. Once the European nations realise that we are not going to budge on control of our borders, they will want to talk, in their own interest”.
  • As a practical matter, upcoming negotiations regarding Brexit and bilateral trade deals between the UK and non-EU countries may strain the resources of Whitehall. Parliament’s Public Administration and Constitutional Affairs Committee has warned that the 12-20 officials with direct knowledge of trade negotiations will need to be supplemented by skilled negotiators from outside the UK, the private sector, and other talent pools (including the 1,000+ UK nationals currently employed by the EC).
  • On the financial front, the UK Government and Bank of England both signalled that they would continue business as usual.
    • In contrast to pre-referendum comments made by former Chancellor Osborne, Chancellor Hammond has said that there is “no plan for an emergency budget”.
    • The Bank of England has kept the UK’s main interest rate at 0.5% (a level it has been at since March 2009) despite considerable speculation that the rate would be lowered. The Bank of England noted that “most members of the Committee expect monetary policy to be loosened in August”. It is reported that the financial markets had priced in an 80% chance of a cut to interest rates.

EU:

  • Responses from the European Parliament to Theresa May’s appointment as UK Prime Minister and her cabinet include:
    • the Christian Democrat Leader saying that his group wants close co-operation and that they are keen to “find a reasonable way for the UK” to leave the EU, but that the UK must respect the clear exit procedure rules;
    • the Socialist Leader urging May to: (i) promptly trigger Article 50 to start creating a new relationship with the EU, as no negotiations will begin before this; and (ii) make clear to her party and Leave voters that a lot of what was promised in the referendum campaign “is neither feasible nor desirable”, as single market access requires the free movement of people; and
    • the Liberal Leader saying that “British humour has no borders” in reaction to Boris Johnson’s appointment as the new UK Foreign Secretary.
  • Outgoing and incoming financial services Commissioners Hill and Dombrovskis said that the Commission’s priorities in financial services, including building a Capital Markets Union, will not change.
  • French President Hollande announced that, together with German Chancellor Merkel and Italian Prime Minister Renzi, they will hold another meeting at the end of August in Italy to discuss the way forward following the UK referendum result.
  • German leaders and officials also expressed an interest in moving forward quickly but some expressed concerns regarding Johnson’s appointment as Foreign Secretary:
    • in a telephone call, Merkel invited May to Germany to discuss, amongst other things, Brexit;
    • Finance Minister Schäuble called for quick and organised Brexit talks, saying that “the sooner we get clarity, the easier it is to limit possible risks”; and
    • reacting to Johnson’s appointment as the new UK Foreign Secretary, the Social Democrats' deputy leader said that “May seems to be weaker through making such an appointment” and that Johnson “had hardly shown himself to be an outstanding diplomat”.

US:

  • The Wall Street Journal reports that the UK’s exit from the EU is not seen as a major threat to the US economy. Economists participating in the Journal’s monthly survey of forecasters indicated that:
    • shifting the overall US economy off course would “need a much bigger shock than Brexit”;
    • a stronger dollar would lower the cost of commodities in the US, while raising the cost of exports, but that positives and negatives would “almost cancel out”; and
    • the possibility of a “drawn out” exit by the UK with “unfavorable economic terms” was the chief downside risk.

Next steps:

  • 19 July: May expected to chair her first Cabinet meeting
  • End of August: Meeting to be held by Holland, Merkel and Renzi to discuss way forward after UK referendum result
  • 4-5 September: Gathering of world leaders at the G20 Summit in China
  • 16 September: EU Summit meeting on new EU priorities and Brexit negotiations (without the UK)
  • 2-5 October: Conservative Party Conference
  • 20 October: EU Council meeting