Brexit Exit

3 Major Impact of Brexit on Investment Opportunities in UK

Brexit has been a watershed moment for UK. The immediate after-effect of Brexit has seen UK staring at an economic uncertainty. This uncertainty has created ripples across UK financial service industry and hampered investment opportunities all across. With the result that not only has the Pound  hit a three-decade low since 1985, UK has been stripped of final ‘AAA' ratings by Standard& Poor as also downgraded  from AA+ to AA's rating by Fitch.

The break-away from EU thus not only marks UK's exit from the elite AAA club but also the cruel fact that UK economy is deemed less credit-worthy than its erstwhile counterparts like the USA, Australia and Switzerland. The aftershocks of Brexit are likely to remain for the next few months or probably years too, thus adversely affecting FDI and other financial investments. What is equally more interesting to note is the strained political dynamics between of UK and EU after the break-up and its repercussions on financial sector and its niche markets like corporate bonds, structured finance.

3 Major Impact of Brexit on Investment Opportunities in UK

London has been the financial capital of world and while it will continue to retain a strong competitive edge, the sector looks to experience loss of liquidity and increased cost of financial services. The recent down grading of ratings by S&P and Fitch within just days of Brexit voting only goes to show the rough terrain ahead.

UK – Gateway to Europe No More!

UK has been an attractive investment destination as a gateway to Europe. Brexit will now result in taking away the sheen due to reduction in FDI and even attracting new investments.  Investment companies are likely to be adversely affected because they will not get the preferential treatment that they once had access to. With European investors backing off to stay or invest in Europe, this will likely have a spiralling effect on Stock market, job creation and investment opportunities.

Financial Passporting from UK Halts and Exodus:

Passporting from UK refers to the practice wherein any UK or European bank or insurance company could operate across Europe as long as they had a base in London. After Brexit this practice now comes to end and will compel many banks to move away from London, thus harming its status as the world financial capital.

Moreover UK banks and financial companies looking to establish base in Europe will no more have the preferential treatment but will now have to comply with EU's strict guidelines. Recent developments confirm that EU will move its London based European bank regulator to financial hotspots in Europe like Paris or Frankfurt. This shift of Euro-denominated banking from UK to Europe will most likely have significant opportunity cost in securitisation and bond market for UK.

 Is London Bridge falling down?  More Anti-establishment backlash?

London is the centre of UK economy and so is the financial services the centre of London. However the future still uncertain on what regulations advantages that UK is able to wriggle out with EU. With reports warning a rise in inequality between the rich and poor apart from instable political power, there are potential risks of stagflation in UK. The high inflation and slower growth may seriously hamper its ability to bounce back after the Brexit.

Brexit has sparked a new political and financial trajectory that might have positive long term benefits for UK. However for the short term, the turmoil only points to serious repercussions that most likely will curtail investment opportunities in UK.