UK banking sector ‘can cope with no-deal Brexit’, Bank of England agent tells Bath Financial Forum

July 4, 2019

The British financial services industry is resilient enough to withstand the shock of a no-deal Brexit, despite the impact that could have on the wider economy, the Bath Financial Forum has been told.

In a presentation to the Forum by the Bank of England’s South West agent Donna Kehoe, she explained that the Bank’s work on preparing for Brexit showed that the UK’s banking system could withstand an economic shock from a no-deal exit. 

“The financial services industry is resilient and can withstand a shock, including Brexit,” she said.

“We look at the worse-case scenarios. The last stress test was in 2018 and it showed banks are more resilient than they were pre-crisis,” she said.

Ms Kehoe acknowledged that such a move could trigger a sharp fall in output and employment. However, the Bank’ central assumption, based on the stated policy of the government, is a “smooth transition” to Brexit, Ms Kehoe told the meeting, which was held at the Bath head office of regional law firm Royds Withy King.

The Forum was launched earlier this year by the firm and inward investment organisation Invest in Bath with the aim of raising the city’s profile as a centre of excellence for financial services.

They have been joined by regional accountancy group Bishop Fleming, which has an office in Bath, while Bath Business News is supporting the forum as media partner.

Last week’s meeting – the second its quarterly events – looked at the impact of the UK economy on the sector.

Ms Kehoe, whose role is to act as the Bank’s 'eyes and ears' by gauging the views of businesses of all size across the South West, gave an overview of the national economic picture before Invest in Bath marketing manager Emma Williams and Duncan Kerr, business growth – team manager at Bath & North East Somerset Council (B&NES) -updated the group on the development of the city’s Quays development, which will offer high-quality business space to firms in the financial sector.

In her presentation, Ms Kehoe said growth of national income, or gross domestic product (GDP), had been of 0.5% in the first quarter of 2019, although the Bank is forecasting much slower growth in quarter two.

While inflation was at exactly 2% – the target set for the Bank by the government – there was expected to be downward pressure in the short term due to lower energy prices. But upward pressure on prices would then tick up modestly after that as wages rise.

On interest rates, the Bank’s rate-setting monetary policy committee (MPC) thinks there may need to be another rise at some stage but increases will be at gradual pace and to a limited extent.

The UK economy had been one of two halves since the referendum, she said. Consumer confidence had remained relatively high while businesses had cut back investment. In fact, growth had often been achieved by taking on more staff rather than spending on new plant and equipment.

But this could become a problem as unemployment continues to fall – relevant in the South West in particular where the jobless rate of 2.7% is much lower than the national average of 3.7%. That is already leading to higher wages and skill shortages,

Some businesses had passed on these additional costs, but others were absorbing them through lower margins, she said.

Invest in Bath marketing manager Emma Williams and Duncan Kerr from B&NES said the two Quays developments sites – North Quay and South Quay – were on track to transform Bath from a tourist destination to a business destination by offering premium office space not previously available on a large scale in the city.  

Invest in Bath was focussing on financial services and fintech as key occupiers for the schemes. Marketing of the first building – the 50,000 sq ft No 1 Bath Quay – was just starting, he said.

While the building, which will be available from 2021, is being offered in 10,000 sq ft floors, Invest in Bath is confident it will be taken in its entirety by a single occupier.

In total Bath Quays will offer 300,000 sq ft of grade A office space to the market on a flexible basis along with an underground car park to replace the surface and multi-storey one in Avon Street, a 130-bedroom business-focused hotel, around 150 apartments and 20,000 sq ft of ground-floor cafes, restaurants and retail units to cater for employees in the offices.

The next Bath Financial Forum meeting is expected to take place in November and will explore blockchain. Bath Business News will publish full details nearer the time.


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