Jill Enzmann: Hello, and welcome to our series, Leading the Conversation: Insights from Wells Fargo. I’m Jill Addison and I’m the head of the U.S. banker for global financial institutions. I’m here with Jay Bryson a global economist for Wells Fargo to talk about his views on the impact of Brexit. Welcome, Jay and thanks for joining us today.
Jay Bryson: Thanks Jill.
Jill Enzmann: It’s been about five months since the Brexit vote. What data trends are you seeing at this stage and what are the ramifications of that vote.
Jay Bryson: Well in the initial aftermath of the vote the confidence indicators that we get out of the United Kingdom to weaken substantially because there was a big financial market fall out. People saw that. And so consumer confidence really nosedived business confidence did as well. Subsequent to that actually business and consumer confidence have both rebounded and retail sales over the summer appear to have held up pretty well.
Jay Bryson: So you know I think it’s probably too soon yet at this point to say the UK won’t have a recession but it certainly looks like growth in the third quarter which is right after the Brexit vote was probably positive. So I think it’s really surprising that we haven’t seen as many negative consequences from this as as we would have thought. Now you know what we’ll will see.
Jay Bryson: I mean you do hear anecdotes of businesses saying you know what we’re just going to hold back on investment until we have a better idea of what’s going to happen here. And so again it’s still too early to say that there won’t be any negative consequences but the initial reaction has been a lot more muted than what we would have thought going into the vote.
Jill Enzmann: And could you address your comments specifically to financial institutions that are based in Europe and the UK. What really impact do you see taking place there?
Jay Bryson: Well, I think you know it goes back to the investment question you know if you’re say based in the UK are you going to you’re in a financial institution are you going to really expand your activities in London right now if there is a possibility that the so-called passport allows you to do banking on the continent if that may at some point get revoked right now.
Jay Bryson: I think that potentially could be one of the biggest consequences of Brexit if you know if that passport gets revoked and you can’t do that banking on the continent then can London still be the financial capital of Europe or the world in that sort sort of sort of environment. Because at that point if the financial institutions fall outside of the EU regulatory umbrella then the City of London essentially becomes an offshore hub for a financial hub and it was that the same thing as being onshore. No, it’s not right. So it’s there’s a lot of unknowns yet in terms of what’s going to happen with the financial institutions the legislation and the regulations surrounding that. And we’re just going to have to see how all that sort of stuff plays out.
Jill Enzmann: What are the emerging discussion points concerns whether there will be a hard or soft exit from the EU. What’s the difference and where do you think the UK government will land?
Jay Bryson: Hard Brexit would be this kind of pick up and essentially leave and essentially completely out of the European Union at that point and that would be kind of like the United States. Right, I mean we still have free trade leasing to many goods within the United States but services aren’t traded widely in a free terms with the European Union here in the United States. So that would be kind of one extreme.
Jay Bryson: You know the good thing about that is from the U.K. standpoint is they wouldn’t have to abide by any sort of EU sort of regulations but it could affect the free movement of goods and services and things of that nature. A softer Brexit is one in which there’s some sort of negotiation where they keep some of the parts of the EU and maybe not some of the other parts. So an example of that would be the relationship that say Norway has with the European Union that’s very very soft in the sense that there is free movement of people there’s free movement of goods and services between Norway and the European Union. But Norway has to abide by EU regulations and they also have to kick into the EU budget and that sort of framework. And so you know the closer the more softer you can be the closer you are to the EU the less potential disrupting effects it would have on the European Union the harder it is the more you move away from that potentially the more disruptive at least in the short term it would be it seems like you know the government of Prime Minister may she had some statements recently seemed indicating more maybe we’re going to head more towards a hard sort of Brexit. Maybe that’s just a negotiating ploy at this point. I mean we’ll have to have to see. But you know there’s a lot of interest in the UK at this point who would say hold us I we don’t know if we want to go that sort of hard because that could potentially at least in the short term be very very sort of disrupting. So it’s really going to become a political decision and I think it’s really too early to say exactly how it will end up.
Jill Enzmann: From an outsider’s perspective it seems to take a long period of time to negotiate significant regulations within the EU. So the two year period of time that is talked about in the media once the UK invokes their Article 50 of the Lisbon treaty to negotiate their exit. That seems to be a very short period of time.
Jay Bryson: It is a short period of time now before the UK invokes the so-called Article 15 which gives a two-year notice that we want to leave the European Union. They’re going to have their negotiating position pretty well. It is right they’re not going to go into this without knowing what they want. So so that’s that’s a good thing and so it by the time they actually invoke it probably sometime next spring you know the Brexit vote would be nine months past that. At that point however you know all the technicalities of the negotiations, two years sounds like a very very short period of time. And so what happens if you get to the end of two years well they can potentially kick the can down the road.
Jay Bryson: I mean you know at that point what they could do is they could add events essentially adopt World Trade Organization sort of rules with the rest of the European Union kind of as a stopgap measure but they could also agree to continue to negotiate maybe even more liberal sort of trading relationships with the European Union. So just because it’s two years I don’t necessarily mean to you it’s going to be two years. I mean there would be some sort of stopgap measure but this is probably going to be an ongoing thing for a number of years as they continue to work out the different relationships that they want with the European Union. You know you think about it from the United States standpoint we’re constantly in negotiations with the EU about what our different economic relationships are going to be looked like and so I think you’re going to see kind of the same sort of thing with the U.K. as well.
Jill Enzmann: Very interesting. Thank you for sharing your insights Jay on the Brexit matter.
Jay Bryson: Thank you, Jill.
Jill Enzmann: This concludes our video for today. We hope you enjoy the discussion and invite you to join us again for future videos. If you’d like to submit a topic of interest for us to discuss in the next video please email us at GFI@WellsFargo.com. Thank you and hope to hear from you soon.
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