Last Updated on Thursday, 1 July, 2021 at 11:37 am by Andre Camilleri
Speaking exclusively to the Malta Business Weekly, Dr Mario Vella explains the impact of the UK’s economy upon the Maltese islands.
“The health of the UK economy is of great interest to us. Call it enlightened altruism, if you wish. A healthier state of affairs in the UK would, all things being equal, reflect positively on the Maltese economy directly as well as indirectly through its effect on our other trade partners, especially in the EU.”
In light of this consideration, Dr Vella was asked for a comment regarding Eurostat data that indicates that EU imports from the UK plunged by 27.1%. “There is no doubt that Brexit has hurt trade between the UK and the EU. ONS data for January to April 2021 published in June 22nd indicated that exports of UK goods to the EU fell by circa 4.8%. This contrasts with Eurostat data which shows that EU imports from the UK nosedived by 27.1%. Although satisfactory explanations for this asymmetry have yet to emerge, it is clear that Brexit is proving painful for the UK.”
Dr Vella cautions that the robustness of recovery of the UK economy varies across sectors of economic activity. ONS figures (early June) suggest rapid growth in services. Economic output increased by 2.3% month-on-month in April 2021, despite an unexpected 1.3% drop in industrial output.Forecasts for growth are however positive.
The latest employment figures show recovery. Employment has generally been decreasing and unemployment increasing. The unemployment rate rise was buffered marginally by the COVID furlough program. The assessment of employment figures requires a careful consideration of the interplay between the epidemic and Brexit. There was a quarterly increase in the employment rate. The relaxation of many coronavirus restrictions meant that total hours worked increased on the quarter, albeit remaining below pre-pandemic levels. The redundancy rate decreased on the quarter and is now similar to pre-pandemic levels. Most industries are showing vacancies above pre-pandemic levels.
With regards to UK financial services policy, a subject of great significance for Malta, Dr Vella argues that the extent to which the UK will seek to diverge from the EU is not yet clear. The Taskforce for Innovation, Growth and Regulatory reform, chaired by Conservative MP Iain Duncan Smith, has recommended moving away from “the tangled web of EU-derived regulation” to “a more principles-based approach based on common law.” In particular, the Taskforce last month recommended changes to pensions and insurance regulation that could allow pension and insurance funds to be invested in higher-risk areas.
On the regulatory side, Bank of England’s co-head of Insurance, Anna Sweeney, reassured the insurance industry that it would not be seeking to strengthen consumer protections, and that it would be considering the potential benefits of “reduced levels of protection” in the light of possible costs to policyholders and the economy at large. Pointing out that the UK was the world’s largest marketplace for non-life insurance, she stated that Brexit presented an opportunity to consider how the financial services sector should operate in future.
Although the situation in Northern Ireland may seem to be a remote concern, the EU has committed itself in strong terms to the implementation of the Northern Ireland Protocol, and it is not unlikely that it will not hesitate to retaliate against the UK, should the UK fail to implement the checks that the Protocol entails. It is likely to do so by making it harder for the UK to export to EU (and, thereby, Maltese) businesses, such as by imposing stricter Customs inspection requirements, requiring more detailed certification, and paying more attention to imports from the UK more generally.