US Business

Britain on Friday launched a post-Brexit plan to relax curbs on its powerhouse City sector introduced after the 2008 financial crisis, denying the reforms will bring about new instability.

Prime Minister Rishi Sunak insisted the government was not being reckless in scrapping “ringfencing” of assets held by the biggest banks, to separate their retail arms from riskier investment operations.

“No, the UK has always had and always will have an incredibly respected and robust system of regulation for the financial services sector,” Sunak told reporters.

“But it’s also important to make sure the industry is competitive -– there are a million people employed in financial services and they’re not just in London, in the City.”

The ringfencing policy was introduced after the 2008 global financial crisis, to help banks survive another meltdown.

The so-called “Edinburgh reforms”, announced in the Scottish capital by finance minister Jeremy Hunt, also eased capital requirements for smaller lenders.

The government has already said it plans to lift a cap on bankers’ bonuses, and to require UK regulators to prioritise growth and competitiveness, alongside market stability.

It says the reforms have been enabled by Britain’s exit from the European Union.

Brexit is allowing the government to “reshape our regulatory regime and unleash the full potential” of the finance industry, said Hunt, who voted in 2016 to stay in the EU.

He stressed that “we have learned the lessons of that (2008) crash, we put in place some very important guardrails, which will remain”.

“But the banks have become much healthier financially since 2008,” the chancellor said, adding the reforms would help the City better compete with US and Asian markets.

Since Brexit, the City has slipped behind Paris and Amsterdam by some measures. At Brussels’ insistence, UK finance was not covered by Britain’s EU trade treaty.

– No Brexit dividend? –

And there is mounting concern about the everyday effects on people and businesses of increased costs and border delays.

Brexit has not helped tame red-hot inflation or cut soaring food bills, according to recent research from the London School of Economics.

“I think this whole idea that there is a massive dividend from Brexit (for finance) is flawed,” economics professor Steve Schifferes at City, University of London, told AFP.

The ringfencing reform “is the most controversial bit (and) the most unwise” aspect of the proposals, he added.

Fran Boait, executive director of the pro-consumer campaign group Positive Money, said the end to ringfencing was “extremely concerning”.

“Behind the spin, today’s announcements amount to wide-ranging deregulation that threatens to destabilise an increasingly fragile financial sector, with huge risks to the public and little benefit,” she said.

– ‘Race to the bottom’ –

The opposition Labour party, which is tipped in opinion polls to form the next government, also expressed unease.

But Miles Celic, chief executive of business lobby group TheCityUK, welcomed the “comprehensive” package.

“Boosting the industry’s competitiveness and securing the UK’s position as a world-leading international financial centre is an investment in the nation’s success and in communities across the country,” he said.

Under the reforms, the Treasury said it would axe “hundreds of pages of burdensome” EU-era rules that are deemed detrimental to economic growth and company investment.

“This will establish a smarter regulatory framework for the UK that, is agile, less costly and more responsive to emerging trends,” it said.

However, the government’s push to deregulate after Brexit has run into criticism that it intends a “race to the bottom”, depriving Britons of important protections enacted by the EU.

Global stocks diverged on Friday after hotter-than-expected US wholesale prices renewed concerns that the Federal Reserve will stick to aggressive policies against inflation.

Investors have been poring over economic data as they try to guess whether the US central bank will shift to a softer approach to interest rate hikes or maintain its hawkish stance at a regular meeting next week.

China’s easing of its zero-Covid restrictions, which have hammed the world’s second biggest economy, have been welcomed by the markets this week.

Investors also tracked news that China’s consumer inflation slowed further in November, falling below two percent and providing authorities room to unveil fresh stimulus measures.

Hong Kong shares closed sharply higher Friday, building on big gains for the week while Chinese mainland markets were also higher.

European markets were up in afternoon trading.

But Wall Street opened lower as US government data showed the producer price index (PPI) — a gauge of inflation — rose by 0.3 percent in November, slightly higher than forecast by analysts.

“The numbers themselves weren’t mean so to speak. They were simply less friendly than what market participants had hoped they would be,” said Briefing.com analyst Patrick O’Hare.

The reading will raise concerns that key consumer price data due next week may not be “as friendly as expected either, which in turn will keep the market on edge about the Fed’s monetary policy path,” he said.

The Fed has raised rates by 0.75 percentage points in four straight meetings in efforts to tame four-decade high inflation.

The central bank is widely expected to slow the pace to 0.50 percentage points at its final meeting of the year next week.

But investors are concerned that a strong jobs market and other data might convince the Fed to keep tightening monetary policy longer than had been hoped.

The European Central Bank and the Bank of England also have rate decisions due next week after also hiking their rates sharply this year.

“The hotter-than-expected PPI print called into question the ‘peak inflation’ narrative, although traders know that it is too late for the Fed to change its mind about a 50 (basis points) hike next week,” said Fawad Razaqzada, market analyst at Forex.com and City Index.

Elsewhere, oil prices jumped by more than one percent as Russian President Vladimir Putin threatened to cut production after Western nations imposed a $60 price cap on Russian crude.

– Key figures around 1450 GMT –

New York – Dow: DOWN 0.3 percent at 33,693.79 points

London – FTSE 100: UP 0.2 percent at 7,484.25

Frankfurt – DAX: UP 0.5 percent at 14,333.84

Paris – CAC 40: UP 0.3 percent at 6,664.75

EURO STOXX 50: UP 0.3 percent at 3,933.79

Tokyo – Nikkei 225: UP 1.2 percent at 27,901.01 (close)

Hong Kong – Hang Seng Index: UP 2.3 percent at 19,900.87 (close)

Shanghai – Composite: UP 0.3 percent at 3,206.95 (close)

Euro/dollar: DOWN at $1.0534 from $1.0560 on Thursday

Dollar/yen: DOWN at 136.44 yen from 136.61 yen

Pound/dollar: UP at $1.2262 from $1.2239

Euro/pound: DOWN at 85.89 pence from 86.24 pence

Brent North Sea crude: UP 1.2 percent at $77.08 per barrel

West Texas Intermediate: UP 1.4 percent at $72.44 per barrel

Chinese President Xi Jinping on Friday touted close security and energy ties with Gulf nations during summit meetings in Saudi Arabia that have highlighted tensions with Washington.

On the third and final day of his visit, Xi attended summits of the six-member Gulf Cooperation Council and a broader China-Arab leaders’ meeting.

This is only Xi’s third journey outside China since the coronavirus pandemic began.

The discussions came one day after bilateral sit-downs with Saudi royals yielded a joint statement stressing “the importance of stability” in oil markets — a point of friction with the United States. Washington has urged the Saudis to raise production.

“China will continue to firmly support the GCC countries in maintaining their own security… and build a collective security framework for the Gulf,” Xi said at the start of the China-GCC summit.

“China will continue to import large quantities of crude oil from GCC countries on an ongoing basis,” he said, also vowing to expand other areas of energy cooperation including liquefied natural gas imports.

Oil from Saudi Arabia alone accounted for 17 percent of China’s imports last year, and last month Qatar announced a 27-year natural gas deal with China.

Earlier on Friday, a joint Chinese-Saudi statement spoke of “focusing on emissions rather than sources” in tackling climate change, the approach championed by the resource-rich Gulf monarchies. 

Forty-six bilateral agreements and memorandums of understanding were announced on everything from housing to Chinese language teaching. Both sides are seeking economic and strategic benefits by deepening cooperation. 

However, few details were released despite a Saudi state media report on Thursday that about $30 billion in deals would be signed during Xi’s visit. 

Riyadh and Beijing stressed “deepening relations within the framework of the comprehensive strategic partnership between the two countries, and reaching new and promising horizons”, the statement said. 

Xi’s visit comes during tensions between Saudi Arabia and the United States, its long-time partner and security guarantor, over oil production, human rights issues and regional security. 

It follows US President Joe Biden’s trip to Jeddah in July, before midterm elections, when he failed to persuade the Saudis to pump more oil to calm prices.

– ‘Prestige’ trade deals –

Crown Prince Mohammed bin Salman, Saudi Arabia’s 37-year-old de facto ruler, addressed both summits on Friday, promising “continuing Arab-Chinese cooperation to serve our common goals and aspirations of our peoples”.

The Gulf countries, strategic partners of Washington, are bolstering ties with China as part of an eastward turn that involves diversifying their fossil fuel-reliant economies. 

At the same time China, hit hard by its Covid lockdowns, is trying to revive its economy and widen its sphere of influence, notably through its Belt and Road Initiative which provides funding for infrastructure projects around the world. 

Officials provided few details about the agenda for Friday’s talks, but one potential area of focus was a China-GCC free trade agreement under discussion for nearly two decades. 

Drawing those negotiations to a close would be “a matter of prestige for Beijing,” said Robert Mogielnicki of the Arab Gulf States Institute in Washington.

“It’s not as simple for the GCC states, which seem to be more invested in advancing bilateral ties and are engaged in varying degrees of regional economic competition with their neighbouring member states.”  

A breakthrough on the trade pact could help Saudi Arabia, the Middle East’s biggest economy, diversify its economy in line with the Vision 2030 reform agenda championed by Prince Mohammed. 

Beijing’s foreign ministry has described Xi’s trip as the “largest-scale diplomatic activity between China and the Arab world” since the People’s Republic of China was founded. 

The visit earned a rebuke from the White House, which warned of “the influence that China is trying to grow around the world”. 

Washington called Beijing’s objectives “not conducive to preserving the international rules-based order”.

An ambitious underwater pipeline to bring green hydrogen from the Iberian Peninsula to the rest of Europe will be completed by 2030 and will cost some 2.5 billion euros, the leaders of France, Spain and Portugal said Friday.

The H2Med project comes as Europe is scrambling to reduce its dependence on Russian energy following Moscow’s invasion of Ukraine.

It is also seen as helping Europe transition away from fossil fuels to cleaner energy.

The pipeline between Barcelona and Marseille — also known as BarMar — will carry two million tonnes of hydrogen per year, or 10 percent of European consumption, once it goes online, said Spanish Prime Minister Pedro Sanchez.

“It is going to be the first major hydrogen corridor in the European Union,” Sanchez said.

The project will cost around 2.5 billion euros ($2.6 billion), he said at a joint press conference with French President Emmanuel Macron and Portuguese Prime Minister Antonio Costa.

The three leaders formally signed off on the plans in the presence of EU Commission chief Ursula Von der Leyen on the sidelines of a regional EU summit.

Following the talks, they released a roadmap and timeline for completing H2Med which they hope will be partially covered by European funds. 

The pipeline under the Mediterranean Sea will carry green hydrogen, which is made from water via electrolysis in a process using renewable energy.

The roadmap detailed three options for the route of the pipeline, with the preferred one stretching 455 kilometres (282 miles) at a maximum depth of 2,600 metres. 

Construction would begin in 2025 and last four years and eight months, it said.

– Cleaner energy –

H2Med aims to boost the decarbonisation of European industry, giving it large-scale access to clean energy from Spain and Portugal, which are hoping to become world leaders in green hydrogen thanks to their numerous wind and solar power farms.

“The focus of H2 demand is on sectors that are difficult to decarbonise, such as industry and transport,” the roadmap said. 

“The cost of H2 transmission by pipeline over long distances is 2 to 4 times lower than transmitting electricity over high-voltage lines,” it said. 

Announced at an EU summit in October, the pipeline offers an alternative to the defunct 2003 MidCat pipeline project which was to have carried gas across the Pyrenees from Spain to France. 

It was abandoned in 2019 over profitability issues and objections from Paris and environmentalists.

Initially, the idea was for the pipeline to carry gas from the Iberian peninsula to central Europe, given Spain and Portugal’s huge capacity for turning liquefied natural gas (LNG) that arrives in tankers back into gas form. 

But Portuguese Prime minister Antonio Costa stressed that the pipeline would only carry green hydrogen.

The meeting took place just before a EuroMed 9 summit which groups Croatia, Cyprus, France, Greece, Italy, Malta, Portugal, Slovenia and Spain

Spain’s Sanchez had planned to hold bilateral talks with Italy’s new far-right Prime Minister Giorgia Meloni, but she pulled out due to illness early on Friday, Rome said. 

Britain, Italy and Japan said Friday they will jointly develop a future fighter jet in a project that UK Prime Minister Rishi Sunak said would guarantee national security and safeguard thousands of jobs.

The three nations held out the prospect of cooperation with European and US allies, which are developing their own “sixth-generation” planes, vowing to maintain “interoperability” among all the allies against threats from the likes of China and Russia.

The new “Global Combat Air Programme” is slated to produce its first jets by 2035, merging the three nations’ costly existing research into new aerial war technology, from stealth capacity to high-tech sensors.

“We’re one of the few countries in the world that has the capability to build technologically advanced fighter aircraft,” Sunak told reporters on a visit to a Royal Air Force base in eastern England.

“That’s important because it means we can keep the country safe from the new threats that we face,” he said.

“It also adds billions to our economy and supports tens of thousands of jobs across the country. But it’s also good for our international reputation.” 

The announcement was accompanied by a set of images showing an artist’s impression of the sleek new jets flying past Mount Fuji and over London and Rome.

In a joint statement, the three countries said the project would “accelerate our advanced military capability and technological advantage” at a time when “threats and aggression are increasing” worldwide.

The objective is to develop by 2035 a twin-engine stealth aircraft that could be operated with or without a crew, that would be impervious to radar and boast features such as laser-directed weapons and a virtual cockpit.

For the current “fifth generation” of fighters, the three nations are relying on US-made F-35s. 

But officials in Tokyo stressed that Japan was not turning its back on its close military alliance with Washington.

In a separate joint statement with Japan’s defence ministry, the US Department of Defense said it supported the project.

“We have begun important collaboration through a series of discussions on autonomous systems capabilities, which could complement Japan’s next fighter programme among other platforms,” the US-Japan statement said.

For Britain and Italy, the new jet codenamed Tempest would replace the Eurofighter Typhoon developed with other European allies including Germany and Spain.

For the next generation, Germany and Spain have joined France in their own project, while the United States has separate plans in development, as do China and Russia.

– Pressure from China –

Japan’s prior project to build a next-generation fighter plane, named F-X, was reportedly expected to cost more than five trillion yen (around $40 billion).

Friday’s announcement comes with Tokyo poised to make the largest overhaul to its security strategy in decades.

The government plans to ramp up defence spending — a controversial move in a nation whose constitution limits military capacity to ostensibly self-protective measures.

But the war in Ukraine, repeated missile launches from North Korea and growing pressure from China have helped build support for a bigger budget.

Japan’s Nikkei business daily said that companies Mitsubishi Heavy Industries, BAE Systems and Leonardo would oversee the new project, which is Tokyo’s second joint development after its SM-3 missile made with Washington.

Other companies expected to be in the mix are British jet maker Rolls-Royce, Italy’s Avio Aero and IHI Corp. of Japan.

The Global Combat Air Programme is the latest high-profile example of allied countries collaborating on an ad-hoc basis to develop defence equipment.

Such moves proved controversial last year when the United States snatched a lucrative contract to supply Australia with submarines from France and launched a new US-UK-Australia alliance in the Pacific, dubbed AUKUS.

After a meeting between US and Australian ministers this week in Washington, the two countries said they would welcome Japanese troops into three-way rotations, vowing a united front in the face of China’s rapid military advances.

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