By Andrei Skvarsky.
Swiss private bank Lombard Odier has warned that a Brexit – Britain’s potential exit from the European Union through the June 23 referendum – may threaten London’s status as a global financial centre, thereby depriving Britain of one of its key assets.
Britain’s industrial base has shrunk over the past 20 years to less than 15% of gross domestic product. Services make up almost 80% of the economy, and a lot of them are financial activities, the Geneva-headquartered lender points out in one of its regular investment bulletins.
Global financial companies, many of them foreign-domiciled, use London as a hub for business across Europe. A Brexit would set off a lengthy period of uncertainty, and this would face these foreign companies with a threat of losing their rights to activities in the EU, Lombard Odier argues.
A vote to leave the EU would entail at least two years of talks on the terms of the exit, a period during which Britain will continue to be governed by EU rules.
Nor would investors be happy with this anticipated uncertainty period, the two-century-old Swiss bank predicts.
London is the world’s number-one financial centre today, according to City of London think tank Z/Yen. Z/Yen put Britain’s capital city at the top of its latest 86-rank list of global financial centres, most of which are cities but some are countries or regions.
The list was released in March 2016. London also held the top rung in Z/Yen’s previous ranking table, published in September 2015.
As regards other potential effects of a Brexit, Lombard Odier says it would expect a “significant fall” in the British pound, “some de-rating of most UK assets, and a near- to medium-term risk-off period globally, the intensity and length of which will depend on the exit negotiations”.