What would be the long-term impact of Brexit on UK financial markets 

The United Kingdom has recently enjoyed economic growth that, with the exception of the US, has been the envy of the rest of the developed economies. This is not the first time this has happened –and it's not the first time that a dangerous state of hubris has crept  into the UK's political and press dialogue related to matters economic.

 What would be the long-term impact of Brexit on UK financial markets 


The United Kingdom has recently enjoyed economic growth that, with the exception of the US, has been the envy of the rest of the developed economies. This is not the first time this has happened –and it’s not the first time that a dangerous state of hubris has crept  into the UK’s political and press dialogue related to matters economic.

The United Kingdom has recently enjoyed economic growth that, with the exception of the US, has been the envy of the rest of the developed economies. This is not the first time this has happened –and it’s not the first time that a dangerous state of hubris has crept into the UK’s political and press dialogue related to matters economic.  

In the heart of many an Englishman (yes ‘Englishman’ rather than ‘Brit’) there lies a dream of plucky little England going it alone, taking on the rest of the world and showing them who was really ‘boss’ all along! This Elizabethan dream could, for reasons that I will outline below, lead us to the nemesis that fate has a way of serving up to those who luxuriate in the hubris already mentioned.

I say Englishman because it seems very likely that Scotland, presented with a stark choice of UK or EU membership, would quite likely choose the latter.

The reduced stature of the UK, especially without Scotland, would very likely make the British pound less of an international reserve and investment currency. 

Read more: Brexit would bring short term uncertainty, but longer term picture is less clear

The willingness of international investors and foreign governments to hold onto sterling is a vital factor in supporting the UK’s ongoing current account deficits. A ‘no’ vote could kick start a vicious circle that would make the pound a riskier currency to hold or invest in, thereby reducing its value. 

Both Moody’s and Standard & Poor’s have already warned that the UK’s credit rating would most likely go lower if we vote for ‘Brexit’ as smaller countries and their currencies are considered riskier than larger ones. 

For example, compare Singapore with the USA.

Singapore has a AAA rating by virtue of impeccable finances and ones of the world’s largest Sovereign Wealth Funds. The USA has a similar credit rating but by virtue of the size and power of the country, in spite of fiscal and current account deficits. 

Furthermore, both of the credit rating agencies refer to the damage that would be done to the City’s financial services sector. Any influence we currently enjoy over EU rules and taxes on financial services would be reduced to zero. Decisions that favour Frankfurt or Paris as financial centres to rival London would go unopposed. 

The EU would need, for political as well as financial reasons, to develop their own capital markets and these would be elsewhere. 

Read more: Neil Woodford: What Brexit would mean for the UK economy 

There is already a strong feeling in Brussels, Frankfurt, Paris and elsewhere that the financial affairs of the Eurozone should be orchestrated from within the Eurozone. London’s hold on this business would become yet more tenuous if we weren’t an EU member. While ‘LIBOR’ is set in London, ‘EURIBOR’ is already set in Brussels. 

Londoners can easily think their city gets its enormous status from being the UK’s capital. While they’re partly right, they need also to recognise that London’s status as the preeminent business and financial hub of the EU provides jobs and property price inflation that are commensurate with that status. 

If London’s ‘hinterland’ were reduced to being just England, the house prices and employment opportunities would be at best a very muted version of what we have now.

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