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The UK’s economic growth will be outpaced by all other G7 advanced nations this year – and Brexit remains the single biggest risk on the horizon – according to a new report from Lloyds Bank Commercial Banking, canvassing the views of the world’s biggest financial services firms.
The Financial Institutions Sentiment Survey, now in its third year, canvassed the views of over 100 boardroom and senior executives across a broad spectrum of institutions – including global banks, asset managers, insurers and private equity – on their opinions about the UK economy, business risks, regulatory pressures, technological change and cyber-risks.
The report shows that firms across the sector are concerned about prospects for the UK economy over the coming year, in particular when compared to the outlook for other G7 nations, although on balance most firms expect the economy to remain resilient overall.
Almost three quarters (70 per cent) of firms across the sector say they worry that UK economic growth will be weaker this year than in any of the other G7 nations – a dramatic worsening of sentiment compared to 2017 when just under a quarter of respondents (23 per cent) held that view.
Half of the firms surveyed (48 per cent) say they expect UK growth to stay at 2017 levels, while a third (29 per cent) expect it to worsen and a fifth (23 per cent) believe growth will improve.
Robina Barker Bennett, Managing Director, Head of Financial Institutions, Lloyds Bank Commercial Banking, said: “As the biggest industry in the UK, the financial services sector is a crucial bellwether for the nation’s economic prospects. Fears about Brexit are looming large as the final countdown begins to March 2019, but our survey suggests that the UK economy will prove to be resilient and that it will come through the challenges of the next few months relatively unscathed. There is, however, a real risk that our growth will be slower this year than in all other advanced nations; and that we will fall to the back of the G7 pack.”
Risks for the year ahead – the Brexit Effect
The risk weighing most heavily on the minds of financial services firms is Brexit. More than half the firms surveyed (55 per cent) say that they are worried about the effects of leaving the EU, with a quarter (28 per cent) stating it is the most significant risk they are facing over the coming year. A quarter (24 per cent) say they are now less optimistic about Brexit than they were 12 months ago, while two thirds (62 per cent) say their opinion has not changed.
The issue that appears to be the biggest worry for the sector in relation to Brexit is cross border access. Almost half the respondents* (48 per cent) say this is the aspect of the UK’s exit from the EU that would cause them the most concern if not agreed during 2018; while a quarter (25 per cent) highlight regulation and regulatory equivalence, and one in ten (10 per cent) mention worries about a UK-EU trade deal.
Other risks, in addition to Brexit, that respondents are concerned about for the coming 12 months include:
· Economic uncertainty (35 per cent)
· Regulatory implementation (31 per cent)
· Market volatility (24 per cent)
· Threats of new regulation (23 per cent)
· Weaker demand (24 per cent)
· Geopolitical uncertainty (18 per cent)
· Cyber threats (17 per cent)
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