EU exit provides UK trade partnership with GCC

KUWAIT, June 18 (KUNA) — The possible exit of the UK from the EU may allow the country to create a joint-trade partnership with the Gulf Cooperation Council (GCC) countries, said a report by the National Bank of Kuwait (NBK) on Saturday.
The UK referendum on its membership in the EU, commonly referred to as (Brexit) vote is set for June 23. It will influence sentiment and markets in the UK and the EU, and by extension the world economy. The obvious is pressure on UK asset prices and currency, and a slow economic growth rate in Europe, as some of that has already occurred, said the report.
Slowdown in British economic activity has already been recorded since the announcement of the referendum in February 2016. Britain’s growth slowed to 0.4 percent in the first quarter of the year compared to Q4 2015, while the PMIs (Purchasing Managers Index) have been trending lower in recent months.
NBK also said that the expected drop in the sterling exchange rate will increase GCC investments in the UK, which is already one of the top investment destinations for the Gulf countries, NBK noted.
The sterling has already showed signs of weak performance since the Brexit poll was announced, dropping by 3.5 percent against the US dollar since the start if the fiscal year, and down against the euro by 6.5 percent. The currency will see further losses once the exit was confirmed, the report added.
Meanwhile, the report said the UK enjoys the lion’s share of the European asset management services, gaining 80 percent of investment markets and about 75 percent of reserve fund assets. The exit will cause British companies to lose their shares for other EU rivals, it explained.
In the short term, if the country votes to leave, post-referendum uncertainty would hit business confidence, investment and hiring, possibly tipping the UK into a recession in the second half of 2016, according to the Institute of International Finance (IIF). The Bank of England (BOE) has warned of a technical recession following a decision to leave the EU.
The UK financial sector would be hit hard from a Brexit, particularly if the UK ended up losing the so-called “financial services passport”. Currently, over 2,000 UK financial services firms use the “passport” to access EU markets directly.
In addition, in the near term, a decision in favor of Brexit would put higher risk premiums on UK assets and the cost of funding for UK banks would be expected to rise, at least initially. The cost of dollar funding for UK banks has spiked up earlier this year to its highest levels since 2013, NBK noted.(end)