Banks’ view – Economic implications of Brexit

29 June, AtoZForex – It may be too early to analyse the economic implications of Brexit on the UK, however, markets remain preoccupied with the aftermath of the decision. With several data due for release in coming the days, not much can be told from the reports as regards the Brexit effect on the economy since most of the data were collected before the referendum.

Various banks have been dropping grim reviews about the likely effect of the Brexit on the UK economy. Like Goldman Sachs forecast a recession in 2017. Speaking of the political situation, the research Team at Danske Bank, explained that:

“The EU summit continues and the nomination for the Conservative Party leadership opens today (closes tomorrow at noon). Scotland’s First Minister Nicola Sturgeon is travelling to Brussels to meet, among others, EU Commission President Jean-Claude Juncker in order to ‘fight for Scotland’s place in Europe’ as she wrote on Twitter.”

Economic implications of Brexit

The research team at Wells Fargo suggests that the largest casualty sector of Brexit would likely be in investment spending in the UK. With growth in capital spending already weak, there is a potential for a drop into negative territory in coming quarters. The lender further points that individuals from other EU countries who currently live in the UK will likely not be interested in buying homes in the country now that their legal status to remain in the UK is questionable. Also, how will the City of London fend if there is an exodus of financial firms since the EU passporting system may no longer apply to their business.

“The UK currently enjoys free movement of goods, services and people with the other 27 member countries of the EU (EU-27) under the terms of the Single Market. Although this free movement will not go away overnight, the UK will need to renegotiate the terms under which trade with the EU-27 will be conducted going forward. Whether or not this trade will continue under duty-free terms will be a matter of negotiation. However, the uncertainty surrounding the outcome of these complex negotiations likely will weigh on investment spending in the UK.”

No sympathy

It will no doubt be a long ride to freedom for the UK, a difficult one at that as EU leaders warned at the EU summit that a delay of the UK’s exit process will prevent the start of negotiations over any future relationship. German Chancellor Angela Merkel said after the meeting: “This is no time for wishful thinking, but rather to grasp reality.”

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