The airwaves are full of news and analysis on “Brexit”, where the UK voted to leave the EU in a referendum. The markets were shocked because Brexit was unexpected – most polls immediately before the referendum had projected a narrow victory for the “Remain” side1 . But what does Brexit mean for the money transfer and remittance industry, both in the short and long run?
In the short-term, we’ve seen the Great British Pound (GBP) lose up to 10% of its value immediately after the referendum2 to hit 31-year lows. Treasury data shows that British expatriates worldwide, including the UAE and GCC region, are taking advantage of the weakening pound and are remitting money back home at very favourable exchange rates.
The longer-term picture hasn’t yet come into full focus, but there are some clear lines of analysis taking shape. At the moment, Brexit has led to a market contraction in the UK3 while Europe too has been affected. For expatriates in Europe and the UK, the fall in GBP and Euro (EUR) means a reduction in spending power that could have a negative impact on outward remittances from the European region in the medium-term.
The UK market decline could either be a short-term blip, or last a few years while investors come to terms with a new global reality. In the latter scenario, we may see UK residents search for opportunities abroad, such as in the GCC. This will then spur GCC to UK remittances.
The future of the City of London will also play a key role in the overall remittance picture. At the moment, London enjoys unfettered access to the EU market, and is the financial hub for trading the Euro4. If the city loses its financial “passporting” rights, banks in the City might relocate staff to other European destinations – such as Dublin, Frankfurt or Paris5. This could bump up EU to UK remittance flows as bankers remit money back home to the UK.
On the other hand, the EU market allows the free movement of people, which has led many Europeans towards the UK job market. If final negotiations on Brexit restrict this migration (as seems likely)6, then remittances from the UK to the rest of Europe will witness a decline as fewer migrants enter the UK to seek jobs.
While the short term hasn’t held much good news for European markets, we expect remittances to remain healthy in the long run. A lot will depend on how quickly markets recover, and the shape of the final deal chalked out between the UK and the EU in terms of the free movement of goods, services and people.