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Rise in Inflation and Economic Recession Expected with No-Deal Brexit

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No-Deal Brexit

No-Deal Brexit crisis that has drenched the British currency and poorly affected the economy is once again in controversy. The continuous delays in the UK’s withdrawal from the European Union, with or without a deal has brought uncertainties, as citizens have sought to doubt the government’s way of handling the entire deal.

Noticing the government’s efforts in mitigating the crisis, the critics believe that the No-Deal Brexit might take place by next year. If this happens, then there are chances that the country would be dragged into a recession and pushed for higher inflation.

As of now Prime Minister Boris Johnson has been playing a tough role in getting the country out of the Brexit crisis on its withdrawal date i.e. October 31. But the failed negotiations indicate towards the fact that the withdrawal deadline that has already been extended twice, would once again drag the UK for another three months’ extension.

The MPs have recently passed a law asking Johnson to seek an extension to the Brexit deadline if he fails to pass a deal in Parliament or get MPs to approve a no-deal Brexit by October 19.

The critics believe that post the deal’s extension, if the UK leaves the EU without a deal on January 31, it could lead to a 0.2 percent contraction in the output in 2020. It might also follow an election that sees Johnson’s Conservatives winning the most seats and forming a government.

To begin with, the present uncertainties already have a huge impact on the British economy, which has led to a continued downfall of Pound Sterling. Though the government has been aiming for progresses, the never-ending obstacles are still in their way.  

Previously, the prime minister played an important role in suspending the Parliament amid the Brexit negotiations, a move which was condemned as “unlawful” by the Supreme Court. Saying that it was hindering the MPs duties in the run-up to the Brexit deadline on October 31, the court revoked the Parliament’s five-week suspension.

The new predictions by Bloomberg show that the UK’s crashing out of the EU with a No-Deal Brexit in January would deliver a huge blow to the economy. Despite that, they believe that it wouldn’t have as severe impact as compared to the government’s decision of moving out without a deal on October 31

Moreover, the Bank of England’s (BoE) Michael Saunders said that the Brexit uncertainty that has marked the weakening of the UK’s economy over recent quarters, could trigger interest rate cut. The drop in the pound, along with an increase in tariffs, will lift inflation to 2.8 percent.

In a similar context, the British multinational investment bank Barclays said that there is a wide range of potential paths for the economy. If the UK secures a deal, it would definitely help investment and economy.

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Brexit Engulfs N26 Bank; 200,000 People Given Deadline to Claim Funds

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Brexit Engulfs N26 Bank; 200,000 People Given Deadline to Claim Funds

Under two weeks of Britain leaving the European Union, the German digital bank N26 pulled out of the UK, citing Brexit as the reason for its decision.

The bank which hosts more than 200,000 accounts has asked the account holders to withdraw their money in just two months, ending 15 April 2020. For anyone who fails to withdraw their money in time, would allow the funds to then be transferred to a holding account. The move comes just 18 months after the Berlin-based firm launched in the UK.

The bank had about a dozen employees in the UK, while the majority of its staff is employed in Germany. Following the dissolution of operations, the staff would be given new roles within the business.

The “challenger bank,” which has attracted investors including the US and Hong Kong billionaires Peter Thiel and Li Ka-shing, and the Chinese tech giant Tencent, was supposedly linked with boosting market, but instead Brexit made it fall out of contention.

Back in October, the bank even claimed that it was on due course to survive any instability and will continue post Brexit. Ironically, the posts have since been removed.

“The timings and framework outlined in the EU Withdrawal Agreement mean that the company will in due course be unable to operate in the UK with its European banking licence.”

As reported, the bank has more than 5 million customers in the European Union. And was cashing in on passporting rights that allowed it to make use of the German permit in the UK. According to the rules, British regulators have temporarily allowed the EU financial firms to continue operating after the transition period ends on 31 December 2020, giving three years to apply for a formal licence.

However, at the time of opening what it did not consider were the extra number of factors that could kick in with Brexit. One of them being the cost, which as per the Guardian, started to outweigh the advantages of staying in the UK market.

John Cronin, a financial analyst at the stockbroker Goodbody, said: “It’s quite a competitive market. N26 certainly made some inroads from a savings perspective. But the challenge is on the other side of the balance sheet in terms of monetizing deposits.”

N26 quitting the UK has ironically come only a day after shadow chancellor John McDonnell remarked that he feared there is a “risk” of firms moving from the city. Adding that the government needs to reach on mutual terms with the EU financial services.

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BoE Interest Threats Remain Despite Pound Sterling Soaring to New Heights

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Pound Sterling

December general elections that showcased the Conservative Party’s win, have finally woven some positive results for the British currency that has majorly seen downfalls due to the looming Brexit delays. On Wednesday, Pound Sterling crossed a key level against the Euro, a victory confirmed after the UK businesses increased substantially since the elections.

A recent survey has stated that the Pound-to-Euro exchange rate has crossed the 1.18 level. It became a clear indication of the fact that the businesses in the country were improving at an alarming rate and the similar situations, if continued, could lead to an investment revival.

In the light of continued Brexit delays, Pound Sterling has jumped and fallen innumerable times in the past, bringing in huge fluctuations in the businesses and economic growth of the country. And yet, the expectations from the government to come up with an appropriate solution to avoid the crisis have always remained.

The Pound to euro exchange rate that rocketed upwards yesterday, is so far the highest rate of the year, bringing in business and political optimism in the country. Well, the dramatic improvement approves of a significant pickup in the British economy in early 2020. It also brings in the implications that the Bank of England might opt to keep the interest rates unchanged at their January 30 meeting.

After the CBI’s quarterly business optimism rose to a near six-year high in January, the markets were doubtful that a BoE rate cut would occur by January end. The CBI tracker, which was previously seen at: -44 hit +23 in January.

Since, much of the January was a huge struggle for Pound Sterling, BoE policy makers’ decision to cut rates appeared as a warning to the markets that are eagerly waiting for Friday’s PMI surveys. It would ultimately decide their fate before BoE’s decision.  

Meanwhile, some believe that the surge in Pound Sterling came after Chancellor of the Exchequer Sajid Javid announced that the UK could secure a comprehensive EU trade deal this year. Javid commented: “There is a strong belief on both sides that it can be done. Both sides recognise that it’s a tight timetable, a lot needs to be done. It can be done. And it can be done for both goods where we want to see zero tariffs and zero quotas, and also services.”

The data from the past two days suggests that Pound Sterling has pushed above the tight 1.1655-1.1820 consolidation range, and has risen to test its highest levels of the year to date near 1.1848. Though there are chances that the British currency would rise further in the days ahead, the possibilities of a disappointing result cannot be neglected. If the latter be the case, the Bank of England will by all means cut the rates, that could add a heavier feel to the British currency over the short-term.

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Doubts Grow Over LGSS Law’s Future as Company Remarks ‘Uncertainty’

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LGss Law

A law firm setup by three councils to save money has raised an alarm over “uncertainties” that could risk its future prospects, after its account for 2018-19 posed a £1.2m loss.

LGSS Law – owned by Central Bedfordshire, Northamptonshire county and Cambridgeshire county councils – laid its foundation to offer a “new model” for public sector legal services. But witnessed an unexpected tide during the 2018-19 accounting year. The terms of revenue for the firm during the time fell from £8.7m to £7.8m, as losses increased from £300,000 to £1.2m.

Critics billed that fall in revenue was a sign of concern, however, an independent councilor questioned the terms of conclusion of outsourced services, while LGSS Law avowed that its finances have improved and it expects profits to show up for 2019-20.

In its annual growth, LGSS Law said: “The directors have a reasonable expectation that the company will continue in operational existence for the foreseeable future. However, the directors are aware of certain material uncertainties which may cause doubt on the company’s ability to continue as a going concern.”

As per the reports published last year by BBC, Northamptonshire had offered the firm a £1m overdraft. And the latest reports inform that Cambridgeshire has offered an extra £499,000 credit line.

The UK monetary sector had a rough 2018-2019, especially due to Brexit, which at a time looked to cause much bigger problems, than it is today. From cash flow, working capital requirement, the scale of operations and nature of business, every factor in the market came face-to-face with the unforeseen circumstances.

Consequently, for LGSS, whose business model continues to rely upon its shareholders in the firm in the form of loans, overdrafts and trade payable balances,” a lot of situations would have supposedly gone overboard.

Presently, the law firm is engaged in pursuing the higher-margin lines of business, increasing the efficiency of its free-earning lawyers and increasing its manpower in order to tackle the higher workload volumes.

Adam Zerny, leader of the independent group on Central Bedfordshire Council said, it is really a matter of concern to see losses at £1.2m, especially when the number represents 15 per cent of total company’s turnover.

“I have significant concerns about outsourcing to a third party which cannot be scrutinised in the same way a local authority can. I remain strongly opposed to legal services being outsourced, ” he added.

The clear picture of the firm is yet to be presented on various aspects, but of the overdrafts allocated by Northamptonshire County Council and Cambridgeshire, the firm has already used £950,000 and £375,000 respectively, to help the cash flow and working capital situation. Also, in order to find out how well has LGSS recovered from the loss situation last year, and if the overdraft facility has really helped or not, it is only advisable to wait for the 2019-20 accounts before taking any big investment decision.

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British Economy to Dominate France, Overhaul Germany Post Brexit

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British economy

The description of after-effects of Brexit deal has already taken a hold on every sphere in the country, with the Remainers calling it to be a huge threat to the British economy. The criticism surrounding continued Brexit delays has only led the citizens to believe in such statements.

Recently, a long-term analysis by the Centre for Economics and Business Research (CEBR) proved that the long believed facts are wrong. Instead, it has suggested that Britain will remain a dominant global economy after Brexit and will continue to pull away from France as Europe’s second-largest economy.

British economy, despite many failures and delaying Brexit, has successfully maintained its position in the past three years in comparison to French economy. Since, the EU referendum of 2016, France has failed to overtake British economy.

The analysis has proved that if the same pattern is followed, Britain’s output should be “a quarter larger than the French economy” by 2034 and is even expected to overhaul Germany in six years and Japan by 2034.

Immigration has played an important role in the country. With lowering property prices, more people are immigrating to the UK, which is getting benefitted by young population’s strong performance in the technological, pharmaceutical and creative industries – this would in turn boost Britain’s economy. 

However, the overall effect of Brexit over property prices in 2020 is impossible to predict.

The CEBR believes that Britain’s close ties with the US would reap benefits over the coming years, as the former seeks advantage of the strengthening “Anglosphere”. It has even stated that the countries that are successful in attracting migration tend to grow even faster.

Recently, the Queen’s speech on overhauling immigration and social security co-ordination bill proposed an Australian-style points based system to end free movement in the law. It also stated that from 2021, the EU citizens arriving in the UK will be subject to the same immigration controls as non-EU citizens.

The overhaul would also signify the fact as to if the UK’s world-class research universities and pharmaceutical sectors would remain affected post Brexit. The surveys of existing academic research of 2017 and 2019 found that the credible estimates ranged between GDP losses of 1.2–4.5 percent for the UK, and a cost of between 1–10 percent of the UK’s income per capita, with future warnings against Brexit.

Only the final result, as to if the country would have a hard or soft Brexit, would determine the impact on British economy. Since, the EU has a strong positive effect on trade, it is unclear what impact would Brexit have on foreign investment, followed with immigration and whether or not would the country meet the same fate as stated by the CEBR analysis.

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Seven Major British Banks Pass Tests Conducted by Bank of England

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Bank of England

Bank of England (BoE) is taking measures to tackle any economic crisis that might ensue post-Brexit, despite the landslide victory of the Conservative party in the recently conducted general elections and certainty finally settling on Brexit.

On Monday, the BoE said that it has decided to change the rules on the capital that British banks must hold so that the economic crisis could be avoided. On the other hand, the BoE issued a warning, saying that while the banks can tackle recessions, they can experience concerns if they do not reduce the staff bonuses and shareholder payouts.

Besides issuing a warning about the possible impact of economic crisis, the Bank of England conducted an annual financial sector health check on the major banks of the country. The tests determined if the banks can offer loan to the households and the businesses during recession, without raising their capital to billions.

As per the BoE, Royal Bank of Scotland, Barclays, HSBC, Lloyds, Standard Chartered, Santander UK, and Nationwide Building Society have ‘passed’ for the second consecutive year.

However, the central bank also warned that to avoid raising the capital to billions, major British banks will need to cut dividend payments, banker bonuses, and coupon payments on their corporate debt.

Bank of England Governor Mark Carney, in response to the changes introduced, said, “These changes improve the responsiveness of capital requirements to economic conditions by shifting the balance … towards buffers that can be drawn down as needed”

According to the changes introduced by the BoE, while the average amount that banks need to have remains the same, the amount can be modified during the economic cycle. 

The test that BoE conducted was based on a global market depreciation which would include increasing debts that would take a toll on the US, Chinese and Eurozone economies.

One of the reasons responsible for the increasing debt levels is the increasing level of riskier loans, also known as leveraged lending, that amount to a total of £90 billion.

Addressing the leveraged lending, Carney said, “The sharp build-up in leveraged lending, particularly into the United States, the releveraging of corporate America, is an area where we do see there has been a steady build-up of risk. The quality of those loan books has deteriorated.”

As of now, it remains unclear if the main British Banks will be affected due to the possibility of recession and if the changes introduced by the Bank of England will mitigate the impact or if the post-Brexit scenario will end any possible chance of recession that might impact the UK’s economy.

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