
As expected, Theresa May survived her no-confidence vote. Markets were largely unruffled; the pound rose slightly, trading 0.1% higher at $ 1.2866 , and the yield on UK government gilts held steady. But market calmness belies the coming storm. Theresa May’s victory does not change the situation. The UK is still heading inexorably for a no-deal Brexit on March 29. There is also a general feeling that the risk of no-deal Brexit has reduced and a softer Brexit has become more likely.
The outlook for UK assets has improved; the pound, the FTSE and UK financial assets can be expected to rally in the short-term at least. Indeed, based on these latest developments, most scenarios favour sterling and UK stocks as they are currently undervalued. Market bullishness also appears to stem from May’s call for cross-party cooperation in her statement to parliament after the no confidence vote. Her deal, which attempted to reconcile the conflicting interests of hard and soft Brexiters in the Conservative party, has been resoundingly rejected by Parliament.
Theresa May and senior Cabinet ministers are meeting representatives of other parties in a bid to find consensus to break the parliamentary deadlock over Brexit. But Labour accused the Prime Minister of failing to show good faith by insisting that she will not drop her negotiating red lines. Labour leader Jeremy Corbyn is refusing to meet Mrs May until she takes the prospect of a no-deal Brexit off the table, and was instead going on the offensive by delivering a speech in a marginal Conservative constituency.
A Conservative Right to Vote campaign for a second EU referendum was launched by MP Phillip Lee, who claimed support for a so-called People’s Vote was growing fast among his colleagues on the Tory benches. After seeing off a vote of no-confidence in her Government on Wednesday, Mrs May invited the other party leaders for individual talks to find a way forward on Brexit.
Former British Prime Minister John Major has urged Theresa May to drop her red lines on Brexit or allow parliament to find a way forward to avoid a damaging no-deal departure from the European Union in March. Major said he compromised on key decisions on the Northern Irish peace process and the first Gulf War while prime minister between 1990 and 1997, and May should do the same after her Brexit plan was rejected by a huge majority in parliament. Her deal is dead and I don’t think honestly that tinkering with it is going to make very much difference if any difference at all, Major, who campaigned to stay in the EU ahead of the 2016 referendum.
Brexit is a word used as a shorthand way of saying the UK leaving the EU merging the words Britain and exit to get Brexit, in the same way as a possible Greek exit from the euro was dubbed Grexit in the past. The Oxford English Dictionary awarded this honour to Peter Wilding when it added Brexit to its volumes recently. Wilding is the founder and director of the British Influence think tank – and campaigned for the UK to Remain in the EU in June’s referendum.
A referendum a vote in which everyone (or nearly everyone) of voting age can take part was held on Thursday 23 June, 2016, to decide whether the UK should leave or remain in the European Union. Leave won by 51.9% to 48.1%. The referendum turnout was 71.8%, with more than 30 million people voting. England voted for Brexit, by 53.4% to 46.6%. Wales also voted for Brexit, with Leave getting 52.5% of the vote and Remain 47.5%. Scotland and Northern Ireland both backed staying in the EU. Scotland backed Remain by 62% to 38%, while 55.8% in Northern Ireland voted Remain and 44.2% Leave.
The markets and the oddsmakers were caught off guard by the UK’s vote to leave the European Union. The immediate reaction in the financial markets was swift and violent owing to the surprise. Financial markets will likely calm somewhat after a period of shock and awe, but will find themselves settling into an entirely new vector of macroeconomic and geopolitical uncertainty. The Brexit vote undoubtedly emboldened other EU skeptic parties, particularly in the Eurozone heart of the EU. Other exit referendums arose in the coming months to years.
The UK faced an additional exit referendum from Scotland. The process of Brexit is without precedent, with only the most general timetable outlined in the Treaty of Lisbon. The financial market reaction also fed into the far-flung macroeconomic consequences of Brexit. For example, a sharp and sustained rise in the value of the US dollar versus the euro put added pressure on the weak US manufacturing sector just as it seemed to find a new footing. This puts additional downward pressure on historically weak US growth momentum.
As the date for Britain’s exit from the European Union inches closer, the UK is in turmoil over how exactly that withdrawal will look as two high-profile pro-Brexit leaders, David Davis and Boris Johnson, quitted the cabinet and British Prime Minister Theresa May released a white paper outlining the government’s vision for its post-Brexit relationship with the European Union. The renewed risk of a no-deal Brexit, in which Britain would leave the EU without having reached an agreement on its ties to the rest of Europe, has become uncomfortably high.
For the UK to leave the EU it had to invoke Article 50 of the Lisbon Treaty which gives the two sides two years to agree the terms of the split. Theresa May triggered this process on 29 March, 2017, meaning the UK is scheduled to leave at 11pm UK time on Friday, 29 March 2019. A European court has ruled that the UK can decide to stop the process. Alternatively it can be extended if all 28 EU members agree, but at the moment all sides are focusing on that date as being the key one, and Theresa May has put it into British law.
As per announcement the deadline for Britain’s withdrawal is March 29, 2019. Though a lot remains up in the air right now, it seems clear that in our global economy we can expect Brexit to affect the finance industry and real estate market, as well as trigger a possible global shift in financial power and economic stability. The impact of Brexit has found that disruptions to the level of market access in financial services are economically costly, with the UK bearing the brunt of the negative ramifications.
In such a situation, Britain experiences a direct loss of financial services activity and also loses from the wider fragmentation of EU financial markets. If British banks are not granted the extra benefits they are seeking in a financial relationship with the EU, this could give US and Asian financial institutions a boost in Europe by opening up competition. That could potentially have a negative effect on British banks such as HSBC and Barclays both in terms of their bottom line and their capacity and appetite for loan origination.
The uncertainty surrounding a financial services arrangement has already begun to set off a domino effect, with many banks putting more resources into European hubs outside London– a trend that may very well unseat London as Europe’s financial capital. It may also have negative repercussions on the British economy and, by extension, the global economy, and shift the political and financial landscape in Europe and around the world. London has flourished as a financial center partly because global banks have been able to use the city as a base from which to sell their services throughout the European Union. But that is looking more and more like history, the city’s status as a banking hub is under threat.
Finance and related professional services bring about $ 248 billion annually into Britain, representing 12% of the British economy. Within the EU, the UK hosts the largest financial services sector accounting for 24% of the gross value added produced by that sector in the EU in 2015. At 15.9%, Germany came in a distant second, and was followed by France, Italy and the Netherlands. Now that London’s standing in the finance world is being threatened by the specter of restricted access to the EU market. London may lose 10,000 banking jobs and 20,000 roles in financial services, with $2.1 trillion of assets potentially being moved out of the UK due to Brexit.
Now question is which city is next in line to become Europe’s financial center. For a while it was looking like Frankfurt would replace London as the financial capital of Europe, with the Association of Foreign Banks in Germany saying in March it expects about 20 banks to expand their presence in Germany after Brexit and thousands of new finance-related jobs to be created in Frankfurt. Morgan Stanley, for instance, has chosen Frankfurt as the site for a second European hub in addition to London, and may relocate 200 employees out of Britain.
A global shift away from London could well have negative repercussions on British-based financial institutions and corporations, the City of London, the British economy and the health of the pound. But the dominos may not stop there. The interconnectedness of our global economy indicates that those repercussions may easily spread to the EU and the rest of the world. The British economy may experience such a major downturn and it will have an impact on global growth, and so Brexit could hurt everybody a bit. Britain’s close economic ties with the EU market mean that not only does the UK need to worry about basics like food supply, but the European Union as Britain’s biggest trading partner, accounting for 44% of UK exports also has cause of for concern.
US-based banks are hardly immune either; major US investment banks have been using London as a base for European capital markets, with 80% of their EMEA (Europe, Middle East and Africa) revenues generated in the UK as of 2014. The impact of Brexit is not necessarily going to be negative all around, of course. For instance, while some investors and lenders may turn their backs on what they fear is a sinking Britain, opportunistic investors may see UK properties or shares of UK-based corporations as undervalued and rush to buy at attractive yields.