06 Sep 2016
LBS economist says City too sanguine about leaving the EU
The City is too sanguine about Brexit, a London Business School economist has warned.
Richard Portes CBE, Professor of Economics and Academic Director, AQR Asset Management Institute, London Business School, made the comments writing in City A.M.
Research by EY published this week found that many firms in the City are shrugging off’ Brexit fears. One in six respondents did not expect ‘dramatic repercussions’ from the vote to leave the EU in June’s referendum.
40 per cent of the UK’s top insurance companies who were among the respondents, said that Brexit will not impact their business, while one in ten respondents believed that the result would even be positive for their business.
But Professor Portes warns: “Nobody predicted an immediate fall in output and employment. But those will come. And the City will suffer a lot.”
“EY’s survey results feature the insurance sector, which never benefited from the Single Market (implementation blocked), so there are no surprises there,” Portes explains.
“But watch banks and asset management firms, where passporting is important, as it is in clearing, much of which will inevitably be forced into the Eurozone.”
Both job vacancies and investment plans, he points out, are already down.
“Sterling has fallen a lot, and short positions are up, with the exchange rate set to fall further,” says Professor Portes.
The Financial Services EU taskforce, a high-level committee chaired by Baroness Vadera, is working to come up with a model that would mitigate losses.
“But the way the process is (not) moving, they are likely to fail,” Portes warns.