World Economy

Major Funds Plan to Leave London Upon Brexit

Major Funds Plan to Leave London Upon BrexitMajor Funds Plan to Leave London Upon Brexit

Several of the biggest fund managers based in London are drawing up plans to move trillions of pounds of assets and thousands of jobs outside of Britain should the country vote to leave the EU in a referendum due by the end of 2017.

Prime Minister David Cameron's Conservatives won an unexpected majority in polls last month and are now seeking to renegotiate Britain's relationship with the 28-member bloc ahead of a plebiscite, Reuters reported.

Cameron has toured major European capitals to drum up support for reforms but is facing an increasing strong Eurosceptic voice from within his own center-right party at home.

The Sunday Times said that several major funds had said on condition of anonymity that they had set up committees to prepare for a possible move, with Luxembourg being one possible country to which they could relocate.

The newspaper said it had spoken to fund managers who believed they could be forced to leave due to EU regulations which only allow the sale of investment products in the bloc when the European headquarters are based in a member state.

S&P Warns

The only major ratings agency still to give Britain a top-notch credit rating said it risked a downgrade due to the government's decision to hold a referendum over EU membership, Forbes reported.

Standard and Poor’s has issued a note stating that it would have to rethink Britain’s credit rating if it were to seem likely that a referendum would lead to Brexit, Britain leaving the European Union.

This isn’t actually a major problem for anyone for two reasons. The first being that this is what credit ratings agencies are supposed to do, the second being that such agencies are really reflections of what the market already thinks rather than leading them. So, they’re little more than a reflection of what the market does think, just filtered through the delay of having a committee thinking it over and then writing a report.

That said, they’ve not actually lowered the rating anyway, just warned that they’ve put it on watch. David Cameron’s decision to hold a referendum on EU membership has put Britain at greater risk of losing its triple-A credit score, according to Standard & Poor’s, the only big ratings agency to still give Britain the top ranking.

Cutting its outlook for UK government debt to “negative” from “stable”, the agency highlighted serious risks to the pound and Britain’s ability to attract foreign investment were it to break away from the EU.

If they were really talking up “serious” risks as opposed to reasonably mild changes then they would have actually cut the rating rather than just put it on watch. “There are important risks to the UK’s longer-term economic prospects should it leave the EU,” S&P said, pointing to the impact on financial services and exports. It cut the UK’s status from “stable” and added that there was a one-in-three probability the UK will lose its AAA rating within the next two years.

The idea that it would call into question the ability of the UK government to repay its debt in its own currency is quite a lot of a stretch. S&P waited until markets had closed on Friday to publish its report, suggesting that the decision to hold a referendum before the end of 2017 risked economic policy becoming “more exposed to party politics than we had previously anticipated”.