Brexit: how UK banks are prepared to deal with the fallout of this historic decision
As Brexit continues to rumble forward towards an uncertain conclusion, there’s no denying that the UK will change after March 2019. Whichever side you’re on, the impacts of Great Britain and Northern Ireland exiting the European Union will likely be felt for years to come. But exactly how will Brexit affect the UK banking and finance sector?
Amid dire warnings of the impacts of a ‘no deal’ Brexit, the Bank of England did issue some reassurances about the stability of UK banks. We look at what it could potentially all mean for the future.
The Bank of England predicts that, whichever way it goes, Brexit will likely have a negative impact on the British economy. However, a no-deal scenario would be far worse, perhaps resulting in a recession worse than that seen in 2008. Should Theresa May fail to win support for her proposed deal, and there’s no transition to a trading deal with the EU, it could result in an immediate economic crash. The figures estimate that in such a situation, the country’s GDP could fall by 8% in the year after Brexit.
…the most likely scenario would see a trade deal similar to that of Canada and the EU.
It’s not all doom and gloom, however. In the best-case scenario, which would see a frictionless transition and a close trading agreement with the EU, the UK’s economy could increase as much as 1.75% compared against current estimates. Unfortunately, the most likely scenario would see a trade deal similar to that of Canada and the EU. According to the Bank of England, this is the most likely outcome. In this situation, they expect to see the economy shrink by 1.25% to 3.75% over the next five years.
There is some good news. In a recent stress test by the Bank of England, they found that none of the major banks in the UK are at risk of failing, even in the face of a worst-case Brexit. For the second year in a row, none of the big seven banks needs to raise billions of pounds to secure their position.
…none of the major banks in the UK are at risk of failing, even in the face of a worst-case Brexit.
The banks tested were RBS, Barclays, HSBC, Lloyds, Standard Chartered, Santander, and Nationwide building society. The scenario tested included a drop in GDP of 4.7%. Additionally, it also accounts for a 33% decrease in house prices, and a rise in unemployment to 9.5%. Finally, it tests a 27% decrease in the value of the pound. Even in such dire circumstances, the banks are forecast to remain steadfast.
Deal or No-Deal?
It’s really coming down to crunch time as the Brexit vote in parliament looms near. Whatever the outcome, it’s important to prepare for a period of transition. Hopefully, we avoid a situation where the UK economy and British people are negatively impacted. However, even in such an unfortunate outcome, we can rest assured that the major banks are in a strong enough position to stay afloat.