No deal Brexit vs Swiss economy and banking industry

No deal Brexit vs Swiss economy and banking industry

13 August 2019

With appointment of the new UK Prime Minister, Boris Johnson, the no deal Brexit is highly possible. Johnson states his country will leave EU by the end of October, whether there is a deal or not. What could a no deal Brexit mean for Switzerland – its economy and banking industry? Does Switzerland have separate deals with the UK?

No deal Brexit is very possible

The previous UK Prime Minister Theresa May fought boldly to secure Brexit deal but failed many times. She finally resigned and Boris Johnson took her place. His opinion on Brexit has been loud and clear from the beginning – the UK will leave the European Union by the end of October, whether there is a deal or not. It means that the no deal Brexit is very possible, as time is running out and no agreement on deal has been reached. Such hard stance has caused disruption among British, European experts on business, who worry about dangers for the UK and continental economy and trade if no deal Brexit happens. Economists predict strong recession to come.

Deal between Switzerland and UK

What is the role of Switzerland in all these? The country is not in the EU, but it has trade agreements with the union. When the UK leaves the EU, Switzerland will be left without specific deals with this country. Fortunately, the Swiss government thought about such situation and had been negotiating the trade deal for months before signing it in February this year. This agreement contains all rights and duties connected to trade between Switzerland and the UK – it is echoing the bilateral bills between the EU and Switzerland.  The Swiss business – all its branches from industry, sales, fintech to financial, services etc. – is not that much concerned about no Brexit deal as the bilateral agreement with the UK guarantees that close cooperation between entities from both countries can continue after Brexit, even if there is no deal.

Influence on the economy

The influence of the no deal Brexit is not only limited to trade in short-term perspective. What also can suffer is the economy overall and in more long-term view. With no deal Brexit there is a risk of huge recession in the UK. Such recession would influence the whole continent and in a big way Switzerland, that is trading a lot with the UK. Only last year to the UK there were sold goods worth CHF8.8 billion (EUR8.08 billion per latest exchange rate) from Swiss manufacturers. No deal Brexit means that Swiss exporters could face chaos on borders from day one after the UK leaves the EU – and also higher tariffs and more difficult and longer administrative procedures could be introduced. Surely, a deal between the UK and Switzerland will make exporters’ operations a bit easier, but not necessarily will save them from the effect of the UK’s recession. Obviously, it will all calm down and the UK will adjust to new conditions – their market is known from being very flexible. However, the first few months can be a chaos. When it comes to economy, experts predict the UK will recover from negative growth in short period, but weak growth pace will stay for longer.

Swiss banks and Brexit

How will the Swiss banking and fintech industry be affected by no deal Brexit? The largest bank of Switzerland UBS has already planned its actions – it has merged business that could be reliant to Brexit with UBS SE in Frankfurt, so that it can serve the European clients after Brexit. Those bankers who stayed in the UK will deal with global business.  Credit Suisse also decided to build up their branches in Madrid, Luxembourg and Frankfurt instead of London. Banking industry form Switzerland seemed to take precautions before Brexit – with or without deal – becomes a fact.

A no deal Brexit can also have a significant impact on the EUR CHF exchange rate. The associated uncertainty in the markets could mean that investors flee the Swiss franc to deposit money in a safe currency. This would mean a further decline in the euro exchange rate to which the Swiss National Bank could react. Use our currency converter to find the euro rate that suits you best.