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Financial Services Report United Kingdom 4th Quarter

  • ID: 2139142
  • Report
  • October 2016
  • Region: United Kingdom, Great Britain
  • 23 Pages
  • The Economist Intelligence Unit
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The UK electorate's decision in a June 2016 referendum to leave the EU has significantly weakened the medium-term economic outlook for the UK. Full-year real GDP growth in 2016 is forecast at a respectable 1.9%, underpinned by strong consumer spending, but The Economist Intelligence Unit expects a contraction of 0.5% in 2017 as domestic demand weakens against a backdrop of declining investment, higher unemployment and rising inflation. Amid the huge business and market uncertainty generated by the Brexit vote, we project subdued real GDP growth of 0.8% per year in 2018-20.

The value of sterling has depreciated sharply since the referendum, falling to a 31-year low against the US dollar and a 169-year low in trade-weighted terms (against a currency basket of trading peers). Benchmark 10-year government bond yields initially declined to a new record-low level, but have rebounded amid signs of rising price pressures and investor concerns of a "hard" Brexit. Share values have proved resilient (in local-currency terms), although broad gains mask underperformance by sectors more exposed to the UK consumer market. The uncertainty created by Brexit is likely to put at least a temporary brake on consumer credit growth and dampen activity in the housing market. Lending to businesses has in any case been lacklustre, having never regained momentum following the financial crisis of 2008-09.

Brexit, the details of which are unknown, poses significant risks to the UK's financial services sector. If the UK loses access to the EU single market for services, a possible trade-off for gaining greater control over immigration, then some operations currently based in London are likely to shift to financial centres within the euro zone, such as Amsterdam, Dublin, Frankfurt or Paris. The government has stated that it plans to begin the formal process of the UK's exit from the EU in early 2017, which will trigger a two-year deadline to negotiate a deal with the EU on the UK's withdrawal agreement. Separate negotiations will also need to be held on a new UK-EU trade deal, a new UK-WTO deal and new agreements to replace more than 50 existing free-trade agreements (FTAs) currently linked to the EU. The talks will be hugely complex, as there is no domestic consensus as to what Brexit should look like, what might be acceptable to UK voters or what EU countries are likely to agree to. We forecast that the UK is unlikely to maintain free trade in services with the EU under a future agreement.

Industry List: Asset management, Financial Services, Banking, Financial Services, Financial markets and instruments, Financial Services, Financial regulation, Financial Services, Financial Services, Financial Services, Insurance
Industry Codes (NAIC): 52
Industry Codes (SIC): 60
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Financial Services Report United Kingdom 4th Quarter

Financial services report
Overview

Banks

Insurers

Asset managers

Financial markets and instruments

Financial regulation
Overview
Regulatory watchlist

Monetary and currency policy: Monetary policy

Monetary and currency policy: Exchange rates

United Kingdom at a glance

Fundamental indicators

Key contacts
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