The City of London currently is the dominant financial center for euro-denominated markets. An open question that will hurt the U.K. banking sector for an extended period concerns the uncertain future of London’s “passport” for doing business with the 27 other EU member countries. There is a significant threat that business will move from the City to Frankfurt, Paris, or Dublin.

Particular attention is being given to whether euro clearing can remain centered in London. France’s president, François Hollande, is calling for euro clearing to be conducted outside of London. That would have a serious impact on the City as it could lose an estimated 69% of its interest rate derivatives market. Of course, London continues to have the important advantages of the English language and English law.

We think a recession in the U.K.’s economy is highly probable. While second-quarter GDP growth is likely to look surprisingly strong at 0.6%, that figure can be attributed mainly to strong growth in April. A significant slowdown looks all but inevitable for the second half as the repercussions of the referendum play out in the economy.

Whether the recession will be relatively moderate and short in duration or severe and lengthy is very difficult to judge given all the uncertainties, most importantly the U.K.’s future relationship in its many dimensions to Europe. There will eventually be light at the end of the Brexit tunnel. Unfortunately, reaching that light could take years. For the time being we are not taking any direct U.K. positions in our International Equity ETF Portfolios.

The United States has ruled out a separate trade deal with UK if it leaves the European Union, in a major blow to Brexit campaigners.

President Obama’s most senior trade official said that America is “not in the market” for a free trade deal with Britain alone, and warned British firms could face crippling Chinese-style tariffs outside the EU.



Major blow for Brexit campaign as US rules out UK-only trade deal - Telegraph