Four years after the UK officially exited the European Union (EU), the Governor of the Bank of England (BofE), Andrew Bailey, has emphasised the importance of a strong relationship between the two jurisdictions.
In two months, it will be half a decade since the UK officially left the EU and nearly nine years since the referendum took place which decided the country’s future relationship with its counterparts on the continent.
Amidst various heated debates around sovereignty, identity and immigration, trade relations did not always find itself at the forefront of discussion around Brexit. In the grand scheme of things though, trade has arguably the biggest consequences for the UK, a country with a financial services sector accounting for around one-tenth of its annual GDP.
“Now, as I have said many times, as a public official I take no position on Brexit per se,” Bailey remarked in his Mansion House speech last week, held at the official resilience of the Lord Mayor of London.
“That’s important. But I do have to point out the consequences. The changing trading relationship with the EU has weighed on the level of potential supply.”
The UK is a country which depends heavily on its import and export industry, and Brexit has proven a headache for the country in the years since as businesses, particularly SMEs, adjust to changing conditions.
Back in January, a report from invoice finance firm Bibby Financial Services found that 55% of SMEs raised Brexit-related issues as a ‘significant challenge’. It is important to note that issues are usually faced by companies specialising in goods rather than services, meaning fintech and payments are less affected than others.
Nonetheless, the extensive interconnectedness of global financial markets – particularly those between the City of London and its counterparts in the seven major Euronext exchanges – means finance, fintech and payments still feel the Brexit effect. Ensuring strong relations between the UK and EU, as Bailey explained, is a logical step.
“The impact on trade seems to be more in goods than services, that is not particularly surprising to my mind,” he said. “But it underlines why we must be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people.”
The previous Conservative government was the architect of Brexit, some might say unwittingly at first due to David Cameron and Theresa May both being in the remain camp during the referendum.
Notably, despite the trade barriers Brexit created, the Conservatives were also keen to see financial services, and by extension payments and fintech, take on a much bigger role in Britain’s economy.
This ambition has been taken up by Labour after its July election victory, as explained by Rachel Reeves, Chancellor of the Exchequer, in her own Mansion House speech. Labour is particularly keen on seeing Open Banking flourish, introducing legislation to encourage this.
The UK is home to a significant proportion of Europe’s fintech companies, including its most valuable, Revolut. These firms find demand for their services not just in the home market, but also further afield, including the EU, and so maintaining a strong relationship with EU markets will be critical to ensuring UK fintech and payments continue to grow at scale.
