In the latter half of October, the rate of inflation hit its highest level in two years. It also welcomed the four months anniversary of the EU referendum vote and this was the first real evidence of Brexit negatively impacting us. In all honesty, I have no idea what’s next. The Brexit and Global Expansion Summit held on 17th and 18th October had invited some prominent speakers, so I decided to go and find out if they could enlighten me a little.
First impressions count
I was initially taken back with the amount of people NOT there at the summit. It was surprisingly quiet. Perhaps I’m the only one panicking about Brexit. Perhaps it wasn’t all doom and gloom after all. Perhaps the media is fear mongering the living daylights out of us. Perhaps this summit isn’t actually relevant. Perhaps this will mean more food for me at lunch.
However, as I sat down to hear the experts explain the impact of the referendum, it became clear that it was quite literally the ‘calm before the storm’. I was slapped with a lot of dense material which was difficult to digest.
So here is what we already know. The referendum had knocked off an ‘A’ from its credit rating meaning the cost of government borrowing will be higher. The referendum-led recession that many anticipated was averted and economic activity was stronger than expected. Such resilience was due to three main pillars: monetary policy, the housing market and the weakening pound. The Monetary Policy Committee has implemented a four pronged stimulus package including: the cutting of Bank Rates; the introduction of ‘Term Funding Schemes’; and the purchasing of corporate and government bonds. These packages are intended to provide a soft landing for the housing market and with the 15% of the UK GDP relying on exports, the weakened pound provides an opportunity for the export market. In addition, the global economic recovery since the crisis was slow and uneven, with some countries not expecting to recover their pre-crisis economic level until the next decade. Similarly, the UK economy was already slowing down even before the EU referendum.
Here’s what I didn’t know. Brexit could potentially take 5-7 years to complete. At least that is the opinion of James O’Brien, Albright Stonebridge Group. Why? Well, France, Germany and Netherlands are all due to hold elections in the next twelve months with Italy facing a crucial constitutional referendum this December. The British government may be tempted to wait until they can confidently determine the direction of the political wind. If indeed Article 50 is triggered, a two-year period commences in which arrangements must be negotiated for the UK’s withdrawal. The arrangements must then be agreed by the European Council, acting by qualified majority, and after obtaining the consent of the European Parliament. If no agreement is reached, the UK ceases to be a member of the EU at the end of the two-year period. That is, unless all the member states of the EU, including the UK, agree to an extension. However, the longer this exit process takes the longer the period of uncertainty will be. This may mean low lending, low investment and ultimately low capitalisation and low growth.
Too early to judge
So what does this all mean for the FinTech industry? As I sat down with my second serving of lunch, I couldn’t help thinking that there was a key theme that resonated with each speaker. There is a fundamental need for in-bound flow, particularly with the current account deficit that ranks UK second highest in the world. This places huge emphasis on the issue of export and foreign investment. London is a global hub for financial technology and the number one spot in Europe for tech start-ups. This will be an important position If the UK wants to reduce its current account deficit through exports. UK regulators have arguably been more open and flexible whilst working with fintech start-ups, which has made the UK much more attractive than the likes of our European counterparts. The tech sector is currently one of the biggest employers of both home grown and international/european talent. With the suggestion that there will be a crackdown on visas for foreign workers, the notion of access to foreign talent will be high on the agenda for the lobbyists.
Foreign investment since Brexit, however, has been nothing short of stupendous. Softbank went ahead with their acquisition of ARM and Huawei confirmed that their £1.3 billion investment in the UK will go ahead as planned. Investment from China continues to flood in with Beijing Kunlun Tech Co putting £22 million into the peer-to-peer mortgage lending marketplace Lendinvest and a number of private equity and VC firms launching incubators and accelerators. Korea has also been extremely active in bringing over some of their best tech talents to London, showcasing their products through Demo Days. These are clear indications that the world still appreciates the infrastructure that London provides for its tech industry and will continue to see London as a nest for enterprises and talent that the rest of the world can tap into.
At the end of two days of countless speeches and analyses from speakers, there only one conclusion: it’s too early to judge.
Casual conversations between other attendees and I blossomed during the breaks about the summit. Many were just like me, clueless. But in the backdrop of genuine economic and social concerns, there was an air of pragmatism that waved through everyone. A sort of confidence that could weather the turbulence that is brewing. It reminded me of the morning of the Referendum results, when I had breakfast next to a group of British builders at a Cafe in Holborn. Their conclusion was to ‘wing it’. It might just be the best conclusion I’ve yet to come to.
Director of the IMF Europe, however, put it just a tad more eloquently during his speech at the summit by quoting our new Nobel Literature Prize winner, Bob Dylan:
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin