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Trading Kingdoms: Post-Brexit blues
Mariano A Davies
October 9th, 2016
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This article is more than 7 years old.
The historic vote to leave the EU has witnessed immense political upheaval in the UK. Despite polls indicating that the vote would be extremely close, the result still came as a huge shock to many in the UK and across the world.
The long-term consequences of the Brexit referendum remain unknown, as so much regarding the future deal between the UK and the EU still remains unresolved.
Both growth and decline
The second quarter of 2016 saw steady growth figures of 0.6% in the UK. Consumer spending has been one of the main growth drivers, as it continues to play a significant role in the recovery in the UK since the financial crisis.
However, concerns have been raised, as this is not necessarily a good thing if consumers are using up their savings and taking out loans, constituting a future threat.
Furthermore, sterling sharply depreciated following the Brexit vote. From mid-2014 to the end of 2016, sterling will have fallen by an estimated 25 percent against the US dollar, potentially providing a boost to UK exports. This may however constrain consumer spending in the medium term as inflation rises and real wages fall.
Yet another crisis
The UK has long been a world centre for international trade and investment. Whether the City of London will remain the financial hub of Europe depends largely on what deal the UK and EU will strike when, and if, Article 50 is triggered.
If the UK retains its membership of the Single Market, it can retain its passporting arrangement and thereby still act as a European hub for financial services.
Should the UK end up with third country status, it will lose its passporting privileges. This could mean the relocation of many financial institutions to Frankfurt, Dublin or Paris, and some might not even wait for the outcome of the negotiations.
In the past century, London has retained its position as one of the world’s financial centres, despite two World Wars and two Economic Depressions. It now faces yet another crisis, and it is an open question whether it can pull through.
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