The short term
We are already in the midst of extreme political uncertainty, and thus it is unsurprising to see panic and volatility in the markets. The extent to which this translates through to the wider economy is debatable.
Many economists have argued that the longer the uncertainty drags on, the more investments will be delayed, or even scrapped altogether. A fall in investment, especially from abroad, poses a significant threat to the UK economy.
The leadership of the government, as well as that of the leading two parties, is up in the air. The electorate may have more decisions to make – potentially through an early general election (parliament has the power to break the five-year fixed-term).
There have even been suggestions that a second referendum could be called further down the line, asking whether or not people accept the terms of Britain’s departure. Lawyers and political analysts have varying opinions on when Article 50 may be triggered, and whether or not the process can be reversed once it has begun. As things stand, the article contains no clear provision for the process to be reversed.
Traders are likely to remain on edge for some time, given the degree of uncertainty. Sudden drops will present buying opportunities, but beware – there is always potential for things to get worse.
Analyst Kit Juckes of Societe Generale said yesterday:
[The] slow motion train crash has momentum. Sterling first: recriminations, two main parties in turmoil and nothing but questions and uncertainty as far as the eye can see. I see no reason to buy the dip.
Some banks have aleady revealed plans to relocate jobs. JP Morgan said, prior to the result, that it could move 4,000 roles in the event of Brexit.
Reports over the weekend said that HSBC would move 1,000 jobs if the UK lost access to the single market – and this is the crux. Many jobs will depend on the level of access granted to UK-regulated companies in a post-Brexit world.
Big banks employ over 60,000 people in the UK. They are already being courted by politicians and bureaucrats in rival European cities such as Dublin and Frankfurt. Their decisions could largely rest on whether or not they can retain “passporting” rights, which allow them to operate across the EU.
Before the referendum, Leave proponents such as Michael Gove conceded that the UK would lose access to the single market after Brexit.
However, in his Telegraph column this morning, fellow Tory MP and Leave campaigner Boris Johnson says:
As the German equivalent of the CBI – the BDI – has very sensibly reminded us, there will continue to be free trade, and access to the single market.
However, despite his assurances, it remains to be seen how such access will be kept, especially if the UK does not agree to freedom of movement. Polling data shows that opposition to six-digit net immigration was a key factor behind many voters’ decisions to back Leave.
Some commentators believe that banks and other City firms will begin to devise exit plans straight away, rather than wait for a potentially drawn out set of negotiations.
London Stock Exchange boss Xavier Rolet argued, prior to the referendum, that the loss of jobs post-Brexit would be “substantial” and “almost immediate”.
If you move the clearing of a particular security as large as euro – the euro’s a big market, a big liquid market – out of London, everything goes with it. Syndication, origination, structuring, trading, management, as well as all the ancillary activities – the lawyers.
On the flip side, Tobin Ashby from Pinsent Masons notes that access to EU markets, while important, isn’t the be all and end all. “London is also an important centre for markets outside the EU and will continue to be so even with the UK leaving the union and so firms will not necessarily be looking to move their central hub from the City,” he said.
Might there be any beneficiaries from the outcome of the vote?
Putting a positive spin on the potential loss of jobs at big banks, Jay Dickieson from the Summerhill Group, an advisory service for startups, believes that the fintech sector can benefit.
In the days since the vote, we’ve had enquiries from bankers extremely worried about their jobs,” he said. “As they survey their alternatives, many are concluding the only way to match the potential financial upside of a career in the City is to develop, or join a startup in London’s thriving fintech scene.
And writing in City A.M. last week, Gove insisted that innovative financial companies would thrive in London, once removed from the regulatory shackles of the EU.
“When it comes to financial services, the EU strangles innovation without actually protecting customers,” he said.