Sunday, August 20, 2017

The Economic Cost Of Brexit

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Loans are a part of almost everyone’s life; we need them to buy houses, buy cars, and start businesses. In the immediate aftermath of the narrow Brexit vote, the pound sterling dropped to a 31 year low, and in March 2017 Deutsche Bank warned that it could still drop by a further 15 percent by the end of this year. Understandably, many were left wondering how this result would continue to affect their mortgages, savings, and the economy in general. 

America also had a vested interest in the referendum result, as most big US companies use their trade deals with the UK as a door to trade with the rest of Europe. Even though Prime Minister Theresa May and President Donald Trump have talked about negotiating a new trade deal that benefits both countries, big companies and banks are looking to establish footholds in Europe so they can stay in the EU market. It may be good for their business, but companies like Rolls Royce and JPMorgan warned that the migration of banks and big companies from the UK to Europe would lead to increased unemployment in Britain, pushing the country into a recession and taking America down with them. 

Lloyd’s bank, one of the biggest mortgage lenders in the UK, was brought back into full private ownership in May 2017, yet they have also established a foothold in Berlin so they can continue to work in the European market. CEO Antonio Osorio has acknowledged the new set of challenges posed by Brexit for financial services but remains reassured by the robustness of the UK economy.

He said: “Low unemployment, higher house prices and reduced levels of household and corporate indebtedness mean the UK enters this period from a position of strength. But clearly, the shorter the period of uncertainty regarding the UK’s future relationship with the EU, the better. Businesses need certainty about the legal and regulatory environment in which they will be operating, so they can plan accordingly and make investment decisions.”

Although financial markets have since recovered, stocks and global growth prospects could fall again if the markets see too many economic downsides from Brexit. The London banking industry is heavily dependent on Europe, and there are genuine fears that a bad deal would see it sink. In August 2017, the pound sterling fell yet again to an eight-year low against the euro - analysts have said that sterling could fall to parity against the European single currency if the likelihood of a bad Brexit deal increases.

Banks might still be committed to doing the best for their customers, but the average borrower does wonder how their savings and line of credit might change when their bank has a foothold in a different country. Rolls Royce and JPMorgan have warned that moving businesses from the UK to Europe could lead to increased unemployment in Britain, pushing the country into a recession. Either way, the uncertainty itself could stagnate the economy, with people too afraid to sell houses, or start businesses.

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