Bank of England believes Brexit could cost 75,000 finance jobs

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The Bank of England believes that up to 75,000 jobs could be lost in financial services following Britain’s departure from the European Union.

I understand senior figures at the Bank are using the number as a “reasonable scenario”, particularly if there is no specific UK-EU financial services deal.

The number could change depending on the UK’s post-Brexit trading relationship with the EU.

But the bank still expects substantial job losses.

Many jobs will move to the continent.

The Bank of England has asked banks and other financial institutions, such as hedge funds, to provide it with contingency plans in the event of Britain trading with the EU under World Trade Organisation rules – what some have described as a “hard Brexit”.

That would mean banks based in the UK losing special passporting rights to operate across the EU.

The EU could also impose other “locations specific” regulations such as where trading in trillions of pounds worth of euro-denominated financial insurance products has to be based.

That could mean trading jobs moving to Paris or Frankfurt.

There have been a number of studies on the potential employment impact of Brexit.

A poll of more than 100 finance firms by Reuters suggested the number of job losses would be just below 10,000 in the “few years” following Brexit.

I understand the bank believes the 10,000 jobs figure is likely on “day one” of Brexit if there is no deal.

The Brussels-based think tank, Bruegel, said that over time 30,000 jobs could move to the continent or be lost as London’s financial sector shrinks.

And Xavier Rolet, the chief executive of the London Stock Exchange, has suggested that over 200,000 jobs could go.

The bank believes that is too high, and its scenario over the next three-to-five years is much closer to the 2016 study by Oliver Wyman, a management consultancy which has often been quoted by banking lobby groups assessing the impact of Brexit.

Their report suggested between 65,000 and 75,000 job losses.

The study said that up to 40,000 jobs could be lost directly from financial services, with a further 30-40,000 going in associated activities such as legal work and professional services.

The report also argued that there could be opportunities from Brexit, such as developing bespoke financial services for emerging market economies across the Middle East and Asia including China and India.

Even if 75,000 jobs do go, London would still be by far the largest financial centre in Europe with over one million people employed in financial services in the capital and across the rest of Britain.

And the UK would still enjoy a healthy trade surplus in financial services with the rest of the EU worth many tens of billions of pounds.

Many also believe there will be a positive outcome to the EU negotiations as the City supports many governments and businesses on the continent in raising funds and executing global deals.

Those companies and firms would want to keep a close relationship with the UK and its well-developed global markets capacity.

Before the referendum, many banks suggested that they may move thousands of jobs.

But since then announcements have been more modest.

JP Morgan said it might have to move 4,000 jobs, but since the referendum has cut that number to around 1,000.

The Swiss bank, UBS, said it may move as few as 250 jobs after initially planning to relocate as many as 1,000.

And the chief executive of Barclays, Jess Staley, said that Brexit was no more complicated than setting up a holding company in America, which the bank was obliged to do in 2016.

More recently Lloyd Blankfein, the chief executive of Goldman Sachs, has tweeted that he will be spending “a lot more time” in Frankfurt despite the American bank building a large new HQ in London.


Currency rates hit new low at airport bureaux de change

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Travellers buying their currencies at UK airports are being offered as little as 86 euro cents to the pound.

Foreign exchange broker FairFx, which carried out a survey for the BBC, said this rate, from Moneycorp at Southampton airport, was the worst at any airport bureau de change.

The average euro rate across 16 big UK airports was higher, at 95 euro cents to the pound.

Ten months ago the average at these outlets stood at 99 euro cents. James Hickman, chief commercial officer at FairFX, said the fact that airport rates are so low – much worse even than at High Street banks – shows that the bureaux de change firms are taking advantage.

“In reality they are ripping off the customer, who is effectively captive as they have nowhere else to buy their money at an airport,” he said.

“At most airports and terminals individual companies have a monopoly.

“They should be regulated as there is simply no justification for charging someone 14% [the average margin between the tourist and money market rates] to change their pounds to euros,” he added. That margin is as high as 26% at Moneycorp’s Southampton airport outlet.

Pauline Maguire, Moneycorp’s retail director, said: “The reason for our higher airport rates is the significant cost associated with operating there – from ground rent and additional security, to the cost of staffing the bureaux for customers on early and late flights.”

“An easy and more cost-effective way for customers to buy travel money is to pre-order online and collect at the airport,” she said.

The best euro rate for tourists detected in the airport survey was 1.05 euros, from Travelex at Newcastle airport.

Wide variation

The average tourist rate for the pound against the US dollar is also very low.

Currently the average is $1.12 to the pound at UK airports, ranging from $1.05 at ICE at Norwich airport to $1.15 from Travelex at Heathrow Terminal 3.

Koko Sarkari, chief executive of ICE, which runs bureaux de change at Belfast, Birmingham, Heathrow and Luton airports, dismissed the idea his firm was exploiting a captive market.

“We work hard to keep our prices fair and competitive around the world,” he said.

“However, due to differences in distribution, costs of operation, regional competition and other factors such as ongoing volatility in the market, as we are experiencing now, online prices may not be the same as our ICE branch prices and prices may also vary between branches because of these factors.”

‘Brexit uncertainty’

One reason for the poor rates on offer to tourists is the continued decline of the pound on the foreign exchange markets, in the wake of last year’s Brexit vote.

The pound’s money market rate – the one at which banks buy and sell to each other – has dropped from $1.31 to $1.29 in the past 12 months.

Against the euro it has dropped much more in that time, from 1.18 euro to 1.08 euro.

Continuing Brexit uncertainty is feeding into sterling weakness, said Simon Derrick, a managing director at BNY Mellon.

Traders are looking to see what will happen over the next two months, with the attempted incorporation of EU law into UK legislation through the Great Repeal Bill, and EU negotiator Michel Barnier reporting back to the European Parliament on Brexit talks.

Sterling also hasn’t done that well in August after the Bank of England monetary policy committee voted to keep rates on hold – investors see no prospect of a rates rise any time soon, he said.

However, there are two sides to the story. The euro is also getting stronger because “the eurozone economy is really starting to show some signs of life,” he said.

Eurozone consumer confidence seems to be picking up, and investors think the ECB will start to tighten monetary policy as inflationary pressures build.


Bank of England says Brexit transition desirable for UK, EU banks

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The Bank of England said a transition period after the Britain leaves the European Union would give banks more time to make orderly changes as Brexit poses risks to financial stability.

With UK due to leave the bloc in March 2019, the BoE’s Prudential Regulation Authority (PRA) said it faces heavy demands from Brexit fallout on banks and insurers.

BoE Deputy Governor and PRA Chief Executive Sam Woods said “some form of implementation period is desirable” between Britain leaving the bloc and start of new trading terms to “give UK and EU firms” more time to make necessary changes.

But he stopped short of saying what sort of transition he wanted in a reply to Nicky Morgan, new chair of parliament’s Treasury Select Committee, who asked him this month for his views on the design of such a period.

The UK government has not presented the EU with any firm request for a transition period as it still seeks internal consensus.

UK-based firms are not waiting for clarity and are announcing new hubs in the EU27 to be sure of serving customers there after March 2019 – and avoid the destabilising ruptures in financial links the BoE fears.

Woods had asked banks to spell out how they would cope in particular with a “hard” Brexit where Britain crashes out of the EU with no transition or trading deal.

In a letter to Morgan made public on Wednesday, he said 401 responses were received, which revealed “significant issues for many firms” and the BoE will reach a view on the plans in the autumn.

The submissions provided “further evidence” of risks the BoE had already identified, specifically relating to the continued servicing and performance of existing contracts and restriction on data transfers.

There could be a sharp rise in the number of insurance policies shifted from one country to another, a switch that involves the courts, he said.

“Re-structuring by firms to mitigate risks to their business will in general increase complexity.” Dislocation and fragmentation of markets could bump up costs and cut activity.

The BoE will need to ensure that supervising firms with links between the EU and a Britain outside the bloc, is still doable, he added.

The PRA faces having to authorise and supervise a significant number of additional firms, which could place a material extra burden on resources, Woods said.

London is home to branches of banks from continental Europe and they face having to become subsidiaries, meaning they would be directly supervised by the PRA.

Woods said the issues set out in his response to Morgan “pose a material risk” to the PRA’s objectives as a supervisor, and that this work is a top priority.

“It is incumbent on us to manage this burden but we may have to make some difficult prioritisation decisions in order to accommodate it,” Woods said.


Ban on unarranged overdraft charges considered by FCA

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Charges for unarranged bank overdrafts could be banned, under one option being considered by the Financial Conduct Authority (FCA).

It said the charges for those who go into the red without agreement can be high and complex.

Earlier this month, the UK’s largest lender, Lloyds, said it was getting rid of unarranged overdraft fees altogether from November.

Barclays has already stopped all unauthorised lending.

However, other banks charge about £6 a day, or up to £90 a month.

“We believe there is a case to consider fundamental reform of unarranged overdrafts, and whether they should have a place in any modern banking market,” the FCA said, in its review into the high-cost credit market.

“Maintaining the status quo is not an option,” said FCA chief executive Andrew Bailey. Unarranged overdraft fees were often “significantly higher” than payday loans, he added.

However, the FCA made it clear that an outright ban on unarranged overdrafts was only one option being considered.

It could impose a cap on charges, or demand some affordability checks before a bank lends money on an unplanned basis.

A year ago the Competition and Markets Authority (CMA) decided against a capon charges.

Half of all overdraft users go over their agreed borrowing limit, according to the CMA. In 2014 such customers spent £1.2bn in charges as a result.

The banking industry responded by saying that customers were usually warned if they were about to go overdrawn, usually via a text alert on on a mobile app.

“When used sustainably, consumer credit is important for economic growth, and lenders work hard to ensure the balance is right between helping customers to borrow while ensuring longer term affordability,” said Eric Leenders, head of personal banking at UK Finance.

Motor finance

The FCA has also highlighted concerns about the rent-to-own market, typically used by consumers to buy fridges, freezers and televisions.

“We think that is a sizeable issue, because people are paying three or four times more than if they used cash,” Mr Bailey told the BBC.

The FCA said that one option might be for housing associations to provide such goods instead.

Mr Bailey said there were also concerns about motor finance, a worry already highlighted by the Bank of England.

“We’re looking at affordability tests and the transparency of terms,” he said.

The FCA will publish an update on this work in the first quarter of 2018.

Payday loans

As part of its review into high-cost lending, the FCA also looked at how the cap on payday loans was working.

It said that the cap, first imposed in January 2015, had delivered “substantial benefits” to consumers.

Since then, no one has had to pay more than 0.8% a day of the amount borrowed. The maximum they pay is no more than twice the amount they borrowed.

The FCA said its review found that the cap meant 760,000 borrowers in this market were saving a total of £150m a year, that companies were now less likely to lend to customers who cannot afford to repay, and debt charities were seeing fewer people struggling with ballooning borrowing from payday loans.

Mr Bailey said the FCA would continue to focus its efforts on what else needed to be done in this area.


Bank of England strike to go ahead

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A three-day strike by Bank of England support staff will go ahead after talks at the conciliation service Acas ended without agreement, the Unite union said.

Employees are unhappy about a below inflation pay rise of 1%.

Protestors are planning to gather outside the Bank of England building wearing masks of Governor Mark Carney.

It will be the first time for over 50 years that staff at the Bank of England have been on strike.

Unite members at the Bank of England working in the maintenance and security departments will be taking part in the strike.

In addition, staff in the Bank of England “parlours” which are meeting rooms on the ground floor of the Bank’s building in Threadneedle Street will walk out. The staff are involved in a variety of work including security and catering as well as conducting visitors around the bank.

A Bank of England spokesperson said the Bank had been told that the industrial action called by Unite would begin at midnight for three days.

“The Union balloted approximately 2% of the workforce,” the statement said.

“The Bank has plans in place so that all essential business will continue to operate as normal during this period. The Bank has been in talks with Unite up to and including today and remains ready to continue those talks at any time.”

The last time Bank of England staff went on strike was in the late 60s and involved print workers in Debden, who were employed by the Bank of England at that time,

Unite said the dispute centred on the “derisory” pay settlement that the bank had imposed on staff without the union’s agreement. It was the second year running that staff had received a below inflation pay offer, it said.

Unite London and Eastern regional secretary Peter Kavanagh said its members had “been left with no choice but to take industrial action”.

“Mark Carney should come to the picket lines outside this iconic British bank today and explain why hardworking men and women deserve to face years of pay cuts.

“They are struggling to pay their bills and feed their families because the bank has unjustly imposed a below inflation or zero pay rise,” he added.

Inflation was 2.6% last month, according to official figures.


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