Is Brexit creating a credit crisis?

Posted on 8 Aug 2016 by The Manufacturer

The UK’s Brexit referendum vote to leave the EU has created quite a stir in global financial markets.

As one of the world’s leading economies, and certainly one of the EU’s, its departure spells gloom for a floundering group of nations that heavily relied on the UK, France and Germany to hold it together. Now with Brexit in the works, there is a great deal of controversy over whether or not Brexit is creating a credit crisis and if it is, who will it affect?

Not a meltdown but a serious concern

No, Brexit wasn’t the catalyst for an economic meltdown but, for onlookers around the globe, it has rattled some serious cages.

When the vote was in on 24 June (ballots cast the previous day), and amidst a great deal of panic, Britons were being vocally reassured by the likes of Mark Carney, governor of the Bank of England. He made a public statement after the tally was in. In his words, nothing would affect the UK economy and investors’ money was safe. But that was the day after the vote, the day the vote was tallied, and there was widespread panic in the nation. Today, it’s another story altogether.

Taskforce created to avoid another crisis

At first it seemed like Brexit would simply impact the UK and its open borders trading with EU member states. If trade slowed then businesses throughout the UK would suffer as would trade partners in Europe. Manufacturing would obviously be impacted as well and in an effort to curb any such fallout, a taskforce was created with none other than Shriti Vadera at its head.

Most remember Ms Vadera as the person who was the driving force behind the bailouts that came on the heels of the 2008 financial crisis. She, it is often said, almost singlehandedly successfully spearheaded efforts to keep UK financial institutions from imploding as Lehman Brothers had and many have her to thank for saving some of the nation’s leading banks.

Negotiating continued trade on behalf of UK banks

Today Ms Vadera is organising efforts to retain as much trade with European markets as possible because when all is said and done, that trade generates the biggest sum of taxes for the UK government and also is responsible for at least 12% of the nation’s financial output.

As many will remember, there was wide scale panic in the days and weeks following that now infamous failing of Lehman Brothers and banks at the time were unable or unwilling to continue lending as they had been doing for fear of imploding as had other major financial institutions around the globe.

A high ranking official from Money Hub recalls that secondary lenders saw a surge in activity as consumers sought loans to help them maintain during a rough period when many jobs were lost and consumers were unable to maintain whilst seeking new employment.

At this time no one expects Brexit to have such a huge impact on financial affairs in the UK but, there will indeed be some sort of repercussion if Ms Vandera’s efforts aren’t successful in negotiating trade with leading EU economies.

Japan puts blame on Brexit for latest round of stimulus

In the most recent of countries to blame Brexit and the uncertainties still on the forefront, Japan has said that they are renewing stimulus money because of the fear that exporters will suffer and the yen will fall lower. Although it is a modest sum at this time, the government has not said it will not add to the stimulus if the uncertainties continue.

So where does this leave the UK? At this point it is anyone’s guess as to the long term implications of Brexit but it is slowly coming out that more people are worried about a failing EU economy than not. With the exit of the UK, trade between soon-to-be failing economies will abate and maybe jobs will be lost and another financial crisis even bigger than 2008 will transpire. It is still up to conjecture though so all eyes remain fixed on the outpouring from Brexit.