UK banks – a grim outlook
As a Brexit deadlock turns to stalemate, UK banks have borne the brunt of bearish investor sentiment.
The recent warning from Standard & Poor (S&P) over the risk of a 'no deal' Brexit has crystallised the fears of many, who have worried that the banking sector is about to be shut out of a vital market and will suffer heavily if the UK economy begins to contract.
It is this cocktail of worries that has driven the declines in bank share prices, with the sector’s steady reduction helping to explain the FTSE 100’s travails since its record high in May.
The prospect of no deal is making the sector look much less attractive. If the UK crashes out of the EU without even the loosest transition agreement, the near-term shock is likely to be unpleasant. UK growth will suffer, confidence will drop and the slowdown in lending and corporate activity will hit the sector’s earnings. Bank balance sheets have been strengthened over the years, but S&P noted that a ‘severe economic shock’ would hit the sector’s current earnings outlook and their ratings.
