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On Christmas Eve, Boris Johnson secured a historic Brexit deal, days before the end of the transition period on December 31. The new deal came into effect from January 1 and now Andrew Bailey, the Governor of the Bank of England, has said Brexit is not a “threat to stability”.
According to the DailyFX Team’s Twitter account – which provides live coverage of forex market news – Mr Bailey said the March deadlines for “financial equivalence” talks are “reasonable”.
They quoted Mr Bailey saying fragmentation of markets is likely post-Brexit and there may be liquidity issues but will be “manageable and not a threat to stability”
Mr Bailey also does not “expect full equivalence”.
Earlier today, senior central bank officials met to speak to Parliament’s Treasury Committee about the stability of the UK financial system, banks’ ability to resume dividends and how regulation will change outside the EU.
Brexit ‘not a threat’ to UK economy says Bank of England governor Andrew Bailey
Boris Johnson secured Brexit deal in December
Mr Bailey warned the trade deal struck with the EU could cost the UK economy as much as four percent of economic output in the long term, as predicted by the Office for Budget Responsibility, versus remaining in the EU.
This prediction is roughly in line with what the central bank forecast in November, according to Bloomberg.
Mr Bailey said: “We put in our numbers that in the third year – the tail end of our monetary policy forecast – the modelling would give you about two percent, just over two percent.
“But you’re right that the OBR, and indeed our model if you let it play out – because it affects a very long run, because of the way in which the real side of the economy adjusts – that something around three to four percent for this sort of deal is probably right.”
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European Commission president Ursula von der Leyen
He went on to say how the EU’s desire to seek more information from the UK about Britain’s future financial regulations was “quite problematic”.
Mr Bailey added: “I fail to see why people want to close themselves off from open markets.
“I think it would be much better for both sides if we have open markets and therefore certainty that way, but if we don’t then of course the markets and firms will evolve.
“Particularly on financial services, because we’re a global financial centre.”
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He continued: “The first motivation would be the EU thinks the rules should never change – that’s obviously mad and I don’t believe that’s what they think because they actually review and change their own rules.
“Secondly, they think our rules should only change when their rules change and we’ve discussed this many times – this would be rule taking, which we obviously don’t support.
“The third one, the sensible one, is that both of us will change our rules when it’s sensible to do so, we’re both transparent about it, but obviously we’ll be transparent at the time and transparent to everybody.
“It’s nothing unique and that seems to me the sensible basis and that’s the basis to judge equivalence.”
The Bank of England
Back in November, the UK allowed the EU to largely maintain its access to UK financial markets.
But Brussels failed to complete its equivalence assessments before the end of the transition period.
In 2019, the City of London exported £25bn of services to the EU.
This equated to almost half the total amount of financial services exported by the UK that year.
Prime Minister Boris Johnson
While Mr Johnson’s Brexit trade deal does not include an EU-wide arrangement for financial services.
This means the City of London can only maintain its pre-Brexit access to the EU if Brussels unilaterally grants regulatory equivalence.
But according to City AM, the bloc believes the UK will diverge from its financial services regulations.
Treasury minister John Glen will lead talks with the EU this week to agree a “memorandum of understanding”.