As an EY survey finds financial firms shrugging off Brexit fears, is the City being too sanguine about leaving the EU?
Professor Richard Portes, academic director at AQR Asset Management Institute, London Business School, says Yes.
Of course nobody predicted an immediate fall in output and employment. But those will come. Both vacancies and investment plans are already down. Sterling has fallen a lot, and short positions are up, with the exchange rate set to fall further. EY’s survey results feature the insurance sector, which never benefited from the Single Market (implementation blocked), so no surprise there either. Lawyers, accounting firms and consultants (EY included) will be fine, as always. But watch banks and asset management, where passporting is important, as is clearing, much of which will inevitably be forced into the Eurozone. The City will suffer a lot. That is why the high-level committee chaired by Baroness Vadera is working desperately to come up with a model that would mitigate the losses. The way the process is (not) moving, they are likely to fail.
Ruth Lea, economic adviser at Arbuthnot Banking Group, says No.
A couple of months on from the referendum vote, the City appears to be carrying on much as before, despite the warnings from Project Fear. As the EY survey found, financial services firms are behaving pragmatically and getting on with the job, as I expected them to do. Business is basically fine and, moreover, is expected to be basically fine. Of course, there will be challenges and, of course, we are still some distance from the eventual settlement with the EU. But as a wholly reasonable working assumption, it can be expected that a trade deal with the EU will be successfully negotiated, including tariff-free trade in goods and agreement on “regulatory equivalence”, akin to the “passport”, for financial services. EU trade, including the City’s activities, can therefore be assumed to carry on post-Brexit much as now. This, allied with last week’s positive data, suggests that the City is right to be sanguine about the future. Granted there are uncertainties – but aren’t there always?