Britain’s Brexit vote to leave the European Union has resulted in instability in the country. The formal negotiations for Brexit haven’t begun yet, but the impact on the country’s economy is significant. Mark Carney, the governor of Bank of England commented that the huge financial services industry will have to deal with outsize consequences when the UK loses a portion of its access to the European Union markets. UK’s position in the single market has innumerable benefits and it is risked when the country leaves the bloc.
Britain’s financial sector has grown large to reinforce itself in the past decades. Carney said that losing elements of such a large sector will have out-sized effects that will force the government to make some judgments. About one-tenth of the economic output of Britain is influenced by the financial services sector. Like most economic experts, Carney said that Britain needs a transition period to ease out of the European Union for Brexit.
There is a huge risk that Britain may not be able to retain its access to the various markets in the block when it exits the European Union. The banking sector is expected to take a major blow when the UK follows a hard Brexit. Many officials in the industry express their concern that at least tens of thousands of jobs will be lost if the UK is not able to retain the single market after exiting the EU.
Many officials in favor of Brexit feel that the EU has more to lose than Britain at this point. Carney agrees with that to some extent. He said that Britain’s exit from the European Union has more short-term risks for the continental Europe with respect to its financial system. The financial services sector of British heavily influences the European Union economy as well. Carney didn’t deny that there are repercussions for the UK economy as well. He emphasized that the EU economy has more short term risks during the transitional period.
The UK government is yet to define its exit strategy. London has been the preferred venue for various global firms to execute their business in the European regions. When the UK leaves EU and its privilege, the fate of businesses in London is at a huge risk. Businesses that have a proper contingency plan could survive this situation and London always has the ability to reinvent itself.
The European Union only allows countries that contribute to the EU budget and free movement of people are allowed flexible entry into the single market. If the UK doesn’t negotiate for a soft Brexit with a transition period, the banking sector established in London has to find new ways to run their businesses in Europe. Short term or long term loss of access to the single market could be disastrous for various financial services. One of the important consequences of invoking Article 50 is that UK has to repeal all applicable EU legislation. This would affect the key industries and EU-derived legislation should be maintained largely.