Perhaps this needs no reiterating that Britain has voted to leave the European Union (EU). Since 23 June, and definitely the months leading up to it, the historic referendum underlined every conversation and now Brexit dominates them. How can it not? It was a once-in-a-lifetime vote, a fundamental decision and the repercussions will be felt on the social, political and economic fronts for years to come, and not just by the UK.
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The leave campaign won with an almost 52% majority and the political turmoil that has followed has a darkly comical undertone to it. London, however, strongly voted to remain in the EU and that doesn’t surprise as the UK capital finds its strength in diversity.
The booming foreign businesses and workers have significantly enabled it to become what it is – the world’s most attractive city especially for the global wealthy (according to data published in June by WealthInsight and Spear’s magazine). The City is a global financial hub and is integral to the UK economy.
It is unclear, currently, how Brexit will affect businesses and the financial services industry on the whole. There was an initial sell-off in equities and Sterling but the post-vote turmoil was expected and the markets have seen an uptick – somewhat.
However, there are pieces of news coming through around deals in the housing and financial sector dropping in the wake of Brexit.
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By GlobalDataOn 4 July, Standard Life halted withdrawals on its property funds and stopped all trading. The firm’s core property fund, Standard Life UK Real Estate Fund, is worth approximately £2.9bn and predominately invests in commercial property. The suspension of other open-ended property funds from M&G and Aviva promptly followed. Values of commercial property have, no doubt, come under threat since the referendum and it’s yet to be seen what real ramifications await.
There are worries around how the post-Brexit environment in the UK will impact Foreign Direct Investments (FDI). Inward investments have been a pillar in shaping the UK economy and FDI remain vital to its growth. According to estimates by the London School of Economics (LSE), FDI could potentially decline by 22% over a decade "as investors opt to hedge their bets by looking for destinations with the right cost profile and mix of institutions inside the EU". The consequences could go either way (as a weaker Sterling could also provide opportunities for foreign investors) but this is another "wait and watch" scenario.
From the off-the-record conversations I’ve had recently with senior executives at private banks, it is about doing the best anyone can with the information currently at hand and not succumbing to unnecessary speculation at a time when the government still needs to get its act together, the Article 50 still needs to be set in motion, and new rules still need to be considered and drawn out. There are clues for the short-term but it is impossible to say for certain what the next couple of years will yield.
For banks, it is a definite concern that they stand to lose the European "passporting" rights by means of which banks located in the UK (as an EU country) can freely trade in any other EU country. It’s a big part of what puts London, particularly, in its current sweet spot as a financial centre. There have been no dearth of speculations around which banks are moving how many of their staff members where (Dublin? Frankfurt? Paris?). No confirmations yet.
Speaking solely from an economic perspective, the UK will need to find a business model that maintains its allure as a dynamic and growth-focused economy. A lot of that will depend on the kind of access it agrees to have to the single European market.
Will the rest of July be as ‘exciting’ as the month of June proved to be? As it can be said about almost everything, currently, watch this space.
