Brexit could spark economic crisis

London / AFP

Britain’s shock EU withdrawal could cause an economic crisis, a top banker warned on Thursday, adding it was “far from certain” London would secure its exit demands in Brussels.
“This is a political crisis that has the potential to create an economic one,” said John McFarlane, chairman of Barclays bank and head of finance lobbyists TheCityUK.
“Unlike the previous crisis, in this instance, the City does not bear the accountability,” he added in reference to the 2008-2009 global banking crisis.
“We have experienced an exogenous shock, and have acquitted ourselves admirably.”
McFarlane said the financial sector wanted the British government to secure single market access in the exit talks, while it also wanted the ability to employ talented workers from Europe and the rest of the world.
Some restrictions on the free movement of people were likely, he added.
“While it is perfectly understandable that it will take time for the country to find its feet, we do urgently need stable, effective and inspirational political leadership to steer the way forward,” noted McFarlane in a speech to TheCityUK’s annual gathering in London.
“Unfortunately it is far from certain what we might be able to secure in our discussions with the EU.
“It is nevertheless important for us to understand what options exist and to plan prudently for all contingencies.”
EU leaders had meanwhile agreed on Wednesday that Britain cannot have “a la carte” single market access after leaving the union—without accepting the bloc’s rules on free movement.
City bankers are anxious that they will lose their so-called “passporting” rights that currently allow London-based financial services firms to operate across the bloc. On June 23, Britons voted 52 percent to 48 percent in favour of leaving the EU after four decades as a member.

UK economic growth slows

London / AFP

Britain’s economic growth slowed in the first quarter from the previous three months, official data confirmed on Thursday, as business investment faltered on uncertainty before the Brexit referendum.
Gross domestic product (GDP) grew 0.4 percent, the Office for National
Statistics (ONS) said in a final estimate for the period between January and March, ahead of the June 23 EU membership vote.
That was unchanged from the previous figure but marked a slowdown from the fourth quarter of 2015, which was revised up to 0.7-percent expansion from 0.6 percent.
“Business investment was highly likely limited by increased business caution ahead of the EU membership referendum,” said IHS Global Insight economist Howard Archer.
“It was also disappointing to see exports of goods and services dip.”
In a shock referendum last Thursday, Britons voted to quit the EU in a so-called Brexit—despite warnings from the government and the International Monetary Fund of a potential recession.
The outcome sparked the resignation of British Prime Minister David Cameron, who backed the unsuccessful Remain campaign and will step down in the autumn.
“We can be confident that the economic recovery has lost further momentum in the second quarter, as Brexit risk began to loom large,” added economist Samuel Tombs at Pantheon Macro.
“Even if the referendum had led to continuation of the status quo, the UK’s economic recovery would be slowing in response to tighter fiscal policy, moderating employment growth and slowly rising inflation.
“The referendum has turned a bad outlook into a terrible one, and we now expect collapsing business investment, a hiring freeze and much higher inflation to push the economy into recession.”
The technical definition of a recession is two or more successive quarters of economic contraction.