Tag Archives: Brexit

Sterling at risk of losing reserve currency status

Post-Brexit shocks to sterling have rocked the currency’s reserve currency statusPost-Brexit blues

When Britons voted narrowly to exit the European Union in a public referendum earlier this year, they may not have envisaged the ensuing shock to the country’s currency and financial reputation.

But now, with sterling languishing at its lowest value in 40 years and the UK stripped of its Triple-A credit rating, the country is also facing the possible loss of its reserve currency status, should it fail to secure continued access to the European single market.

US ratings agency Standard & Poor has admitted that the British government is risking significant damage to the economy’s growth, with potentially long-term implications for the country’s debt and credit profile. S&P fears that if the UK loses access to the single market, its businesses will suffer incalculable consequences for the foreseeable future.

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Hard Brexit could result in British banking crisis

Head of Germany’s central bank warns that UK could lose its status as the financial centre of EuropeThe Brexit dilemma

More than three months have now passed since the British public voted to leave the European Union but there’s been no clear indication so far of how – or when – the British government intends to effect the political and economic split. In order for the process of Brexit to begin, Article 50 of the Lisbon Treaty must be invoked but because that will set the clock ticking on a strict two-year timetable for negotiations, no-one seems in much of a hurry to push the button.

There’s much that is still unclear – and it’s this uncertainty that’s vexing not only the British public but also the businesses that have a lot riding on whether or not Brexit will allow them to continue to have access to the single market. Britain sells almost half of its exports via the common market, and any change to this process is likely to be expensive.

A ‘soft’ Brexit would minimise the economic impact on the UK but is likely to come at the expense of limiting the number of migrants – an area of concern for many who voted to leave the EU. On the other hand, the ‘hard’ Brexit favoured by some leading Conservative eurosceptics could have disastrous consequences for businesses, most notably for the City of London.

Passporting rights are at stake

The head of Germany’s central bank recently warned that London’s position as a financial centre would come into question if the UK left the single market. In this scenario, it’s likely that banks would automatically be stripped of their ability to conduct business across the EU, which would open the door for other European financial capitals to annexe business from London.

In an interview with the Guardian, Bundesbank president Jens Weidmann pointed out that banks’ passporting arrangements are ‘tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area’ (EEA).

Passporting rights allow firms to use London as a hub for serving clients from across the EU, without having to negotiate licences in separate countries. Because of this, international banks with affiliates in the UK actually account for a large share of international banking activity in London. Bullish Brexiters like Foreign Secretary Boris Johnson have reassured banks that the UK will retain passporting rights even if it leaves the EEA, but Weidmann negative this assumption, saying that business would reconsider relocating their headquarters.

UK-based businesses feeling the pressure

According to a survey of 100 business leaders from large companies by accountancy firm KPMG, more than three-quarters of chief executive officers are considering moving either their headquarters or some part of their operations outside of Britain following the referendum. The CBI and PricewaterhouseCoopers have also reported a deterioration of confidence in the financial services sector in the three months to September.

The surveys suggest Prime Minister Theresa May faces a challenge to retain businesses and jobs when Brexit negotiations finally get underway, and that talk of a hard Brexit is already causing companies to consider – or even accelerate – their own exit strategies.

‘CEOs are reacting to the prevailing uncertainty with contingency planning,’ commented Simon Collins, KPMG’s UK chairman.

Brexit means Brexit – or does it?

The British public voted for Brexit, but when is it going to happen?Fun and games

In June this year, the British public voted in a referendum to leave the European Union. The fallout from what, for many, was a shock result, was nothing short of dramatic and the aftermath left a kingdom that seemed very far from united.

Fast forward to the end of August and while the world has been distracted by the games of the 31st Olympiad, heated discussions between Brexiteers and Remainers have subsided into barbed comments traded across social media and a kind of normality has been restored. Business as usual, then. Well, maybe. But while Usain Bolt is packing his running shoes away, it seems like Brexit hasn’t even left the starting blocks.

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IMF downgrades Eurozone forecasts following Brexit vote

IMF have issued a warning over Eurozone growth following Brexit referendumIMF expresses fears over Eurozone growth

Uncertainty about the future of the European Union is affecting economic stability across the single currency bloc. The growth outlook for the Eurozone has been downgraded by the International Monetary Fund (IMF) in the wake of the UK’s Brexit vote, with its managing director, Christine Lagarde, warning of an economic slowdown as confidence dips and markets suffer increased volatility.

GDP in the eurozone is only expected to grow by 1.6% this year, with a further drop to 1.4% in 2017, which represents a contraction from 2015’s 1.7% expansion. The IMF said this was ‘mainly due to the negative impact of the UK referendum’ and was in line with the organisation’s pre-Brexit predictions.

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