How Worried Should We Be?
Thursday 15 November 2018
Hosted by: Bloomberg
Speakers: Simon Fitzpatrick (Cicero), Rebecca Park (UK Finance), Jonathan Tyce (Bloomberg)
Chair: Charlie Ansdell (Newgate Communications)
Alex Reidegeld, The Financial Services Forum
This morning’s seminar could not have been more topical. Throughout the morning, ministerial resignations started to trickle in over the proposed Brexit deal. As the news coverage evolved, our speakers tried to look at a timeline of what we might expect in the coming months and the impact it might have on financial services.
What might happen next? An overview
- Once a deal has been finalised it will be negotiated in Parliament. The Democratic Unionist Party (DUP), Conservative Party MPs favouring a hard Brexit, as well as those in favour of remaining in the EU and the Labour Party front bench are unlikely to provide much support for the deal
- Should the deal pass, constitutional and legislative changes will need to be made. Current stumbling blocks include the border with Northern Ireland
- If an agreement is reached, talks will start all over again to negotiate trading terms etc
- If the deal is not passed in Parliament, options currently mooted include a “No Confidence” vote in Prime Minister Theresa May or a General Election
- Concerns over a Jeremy Corbyn-led Labour government with proposed increase in corporation tax, 10% of share capital returned to staff, part nationalisation and general interference in the business nature and forced reforms
Trading in financial services
- The last 24h have seen the option of agreeing to an extended transition period beyond the two years initially offered.
- A cooperation agreement for FS is pretty much in place
- Cross border processing also remains possible
- Financial Services would like to see “mutual recognition” to continue trading with overseas firms
- Britain would like the EU to offer a more accommodating version of equivalence, covering a broader range of financial activities and ensure the EU can not end equivalence-based access at short notice. None of this is included in the proposed Brexit deal
- Equivalence, as it currently is, doesn’t offer the security businesses need because it can be revoked unilaterally within 30 days
- Equivalence allows certain capital markets to trade but has short-comings that are difficult to explain to consumers
- Possible threat to investment in the City from Asian banks relocating away from the UK
Look after your customers: Communication and spending/saving behaviour
- In the event of a hard Brexit, the Bank of England (BoE) forecasts a sharp increase in inflation from Q2 2019, peaking at 3.5% in the latter half of 2020, before coming down to normal forecasts levels by the beginning of 2022
- Forecast rise in interest rates will have a direct negative impact on GDP
- Mortgage Loan-to-Values in UK banks has seen an average 10% increase in the first half of 2018 compared to 2010 levels. The mortgage mix shift is also set to continue. A healthy mortgage market will decrease pressure on consumers
- With savings rates at an all-time low, consumers no longer have a cushion against unexpected expenses. Increased savings rates, on the other hand, would also negatively impact growth in the short term
- FS providers need to start preparing clear communication to customers in case of a No Deal Brexit to answer common questions about what they will or won’t be able to do (e.g use their credit card abroad, opening bank accounts etc).
The final deal: All doom and gloom?
- Brexit is not at the top of the list of concerns for financial services in Europe. Italy’s mounting debt crisis could mean the UK will be in a stronger bargaining position when it comes to negotiating a trade deal
- Share value of banks across Europe is falling
- The uncertainty gives FS providers a golden opportunity to re-establish trust among their customers by delivering clear help and guidance to a worried and confused market
20 November: Pensions dashboard – will it be a game-changer?
3 December: London Mortgages Forum