UK banks and businesses count the cost of Brexit as pessimism takes hold
UK banks and businesses are counting the costs of Brexit as pessimism takes hold, with some business leaders still in denial that the vote to leave the European Union cannot be reversed.
US and European banks could end up $165bn (£125bn) worse off after Britain’s historic decision to leave the EU, according to a model set up by economists at the New York University Stern Business School (NYU-Stern) .
The NYU-Stern model tests the world’s largest financial institutions by asking the stock market what it thinks about the value and riskiness of the banks’ assets. Then it uses that information to estimate what would happen to the banks in a severe crisis and how much added equity capital they would need to avoid distress.
The Bank of England confirmed that Brexit had already started to have an impact on the financial stability of the UK in its twice-yearly financial stability report.
“There is evidence that some risks have begun to crystallise. The current outlook for UK financial stability is challenging,” the Bank of England said.
Uncertainty over the timing of the next interest rate cut hit the pound on Tuesday, pushing it below $1.31 for the first time since September 1985.
The negative outlook has affected morale among UK companies, with one survey showing that pessimism among UK businesses doubled after UK vote to leave. Almost half, or 49 per cent of businesses reported feeling pessimistic about the economic outlook for the next year in a YouGov/ Centre for Economic and Business Research (CEBR) survey, compared to 25 per cent before.
A fall in confidence could lead to a drop in investment and hiring freezes, the survey suggested.
Scott Corfe, director at CEBR, said the figures suggest a significant shock reaction to the Brexit vote. “Not only are businesses feeling much more pessimistic in general about the state of the economy, but their own expectations for domestic sales, export and investments over the next 12 months have gone off a cliff,” Mr Corfe said.
Some are still hoping the decision to leave the EU membership could be reversed. Lord Karan Bilimoria, the founder of Cobra beer and a crossbench peer in the House of Lord, urged the Government to stay in the EU despite the referendum. result. He told reporters that British voters had been “conned” by the Leave campaign in the run-up to the vote.
“The public have been conned. What I want to know is, what were the Electoral Commission doing? They should have stepped in and stopped the Leave campaign from spreading outright lies, about £350m for the NHS and other appalling mistruths,” Lord Karan said
“I think on that basis alone the vote should be reconsidered, the stakes are too high. I believe and hope we can still stay in,” he added.
David Cameron has ruled out the possibility of a second referendum on Britain’s EU membership. Holding another vote was “not remotely on the cards” a spokesperson for the Prime Minister has said.