Brexit regime uncertainty: some evidence

Following my latest post on the regulatory regime uncertainty caused by Brexit, evidence of the damages has started to emerge.

Unsurprisingly, and in line with the studies mentioned in my previous post, uncertainty is affecting both the demand and supply sides of credit.

On the demand side, the FT reports that

like other small British companies … longer term prospects have been altered by the EU referendum. Last month’s vote has dramatically increased uncertainty on issues ranging from regulatory standards to supply chains. […]

Other local companies have reported laying off staff, raising prices, or scaling back on investment plans, among a range of responses that also include seeking to take advantage of the weaker pound, in a survey compiled by Business West, a lobby group in the south-west of England.

This is evidently not conducive to borrowing and investments, and City AM reports that the number of M&A deals in Britain indeed significantly dropped in the first half of the year. Furthermore, the FT also reports that large British banks “expect demand for credit from businesses and households to fall as a result of post-Brexit economic uncertainty, according to a Bank of England review.”

The same article seems to show that, on the supply side, banks are for the time being only tightening commercial real estate lending given their pessimistic view of the sector (which also was a major contributor to UK banks’ losses during the financial crisis).

Finally, another FT article shows that

An index tracking sentiment in the European banking sector has reached an all-time low, even surpassing levels seen in 2012 when Mario Draghi promised the European Central Bank was prepared to do “whatever it takes” to stabilise the bloc and protect the euro.

This is likely to affect the supply of credit in medium-term across the whole of Europe as Brexit uncertainty exacerbates already-existing European banking issues. The shorter this lasts the better.

Sadly, this situation could take up to six years, according to the UK foreign minister…