There’s been much ballyhoo this week about Britain’s desire for some kind of temporary customs union post-Brexit. We may have to wait until Brussels gets back from its August holidays for a full sense of what European Union officials make of that.
But as the banking industry’s lobbyists point out, this all kind of misses the main point anyway. Yes, the import and export of goods between the U.K. and the EU is huge and important. Just ask the car industry. While services make up almost 80 percent of British GDP, the country exports far more goods to the trading bloc than it does services.
But, as the chart below shows, this is only part of the picture: services are the main prize in the Brussels talks. Britain runs an enormous trade deficit with the EU on goods. On services — with finance uppermost — it runs a chunky surplus.
As Dan Hanson of Bloomberg Intelligence says: “If we don’t get a favorable deal on services, the current account deficit could look even worse.”
So this isn’t just a case of upsetting the bankers; the economic consequences for the country could be dire. With the French in particular in no mood to help out the City of London, British Chancellor of the Exchequer Philip Hammond has his work cut out.
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