Industry News

Repercussions of Brexit on UK Consumer Finance Market

May, 2017 : The process of Brexit started in the UK on 29th March 2017 after the referendum to leave European Union was decided in June 2016. It is expected that the process should be completed by April 2019.

Initially, the country’s economy was negatively affected by the referendum. However, since then, the economy and the stock market has recovered significantly since past year. Moreover, the country’s GDP also witnessed a consistent growth of around 0.6% during FY17.

The short term and long term impact of Brexit on the consumer finance market is still uncertain. It raises questions for consumer finance companies such as government policies, consumer willingness to borrow and market opportunities.

United Kingdom is considered as the largest financial center not only in European Union but across the globe. Along with local institutions, many European finance companies have local presence in the country. For many of the country’s local financial institutions, the impact is expected to be negative as Brexit would leave these institutions with more restricted access in the European Union’s finance market. Moreover, these corporations would also face high competition from other multinational financial institutions from countries such as China, USA along with the locally present institutions.

City of London is considered as one of headquarters for financial corporations and is also considered an entrance to the rest of the European Union through a practice known as “passporting”.

                                                   Y-o-Y Change in Outstanding Consumer Loans in European Union, 2009-2015 


Factors which can negatively affect the country’s consumer lending market are:

  • High uncertainty during the period could result in consumers saving more money and borrowing less and declining consumer expenditure (this was also witnessed during the financial crisis in 2008). This is anticipated to hit mortgage and credit markets.
  • Potential loss of “passporting” mechanism (Right for a firm registered in the European Economic Area (EEA) country without the need for further authorization in each country).
  • Significant effect on cross-border banking services such as investment services, deposit taking and payment services.
  • Access to skilled resources across EU nations.
  • Stricter regulations for foreign banks could lead to high taxation rates, consequently, leading to higher interest rates.
  • Many global financial corporations could relocate their European headquarters.
  • Possible changes in the legal systems.
  • Can result in high price movements in real estate sector.
  • Increase in prices for commodities such as energy, FMCG, Tourism etc.
  • Currency fluctuations (possible decline in pound values).
  • Possible omission of financial services from the trade deal negotiated post Brexit.

According to WTO, the UK Economy could be around USD100 billion stronger, by 2021, if UK had not left the European Union. Furthermore, the impact of Brexit is also dependent upon the post-Brexit deal negotiated with the rest of the bloc. Key possible scenarios of the post Brexit deal include European Economic Area (Countries such as Norway, Iceland), European Free Trade Agreement (e.g. Switzerland), most favored nation (e.g. Australia). There are multitude of issues to consider, and moving forward it is necessary for both European Union and Britain to agree upon a mutually beneficial deal as this would be advantageous for consumer finance market in the coming year.

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