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Will Financial Deal Reduce Brexit Pressure on U.K. Stocks?

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Per a study by the University of Sussex’s U.K. Trade Policy Observatory, foreign investment in the United Kingdom has witnessed strong declines since the 2016 Brexit vote. The United Kingdom, which was once the biggest recipient of greenfield Foreign Direct Investment (FDI) in all the European countries, has had to pay a high price for the Brexit-related uncertainty.

Although, uncertainty over Brexit is expected to weigh on foreign investor appetite, all is not lost for Britain, following reports of a possible financial services deal between the European Union and Britain. Reports of the deal are definitely good news for the United Kingdom with only five months left for the country to leave the economic bloc.

Foreign Investment Slumps in U.K.

Since Britain voted in favor of Brexit on June 2016, the country has witnessed a 17% drop in foreign investment, per the report by the University of Sussex’s U.K. Trade Policy Observatory. In fact, foreign investment has decreased continuously in Britain from its highest levels in 2015. In 2017 alone, foreign capital investment in the United Kingdom was $1.5 billion, down 10% from 2016.

The country which used to receive the highest number of greenfield investment projects in all the European countries, lost its top spot to Germany in 2017. Further, out of the total share of European FDI, the United Kingdom got around 18% in 2017, which was significantly lower than 25%, that the country used to receive in early 2015.

According to Nicolo Tamberi, University of Sussex, said the decline in FDI in Britain indicates that “once the U.K. leaves the EU” it will hamper “investors’ appetite to invest in the U.K.”

Britain-EU Agree on Financial Services Deal: Reports

Moreover, recently increasing possibility of a no-deal Brexit also weighed on sentiments. However, all is not lost. As reported by The Times “Theresa May struck a deal with Brussels that would give UK financial services companies continued access to European markets after Brexit.”

According to a statement from the ministry, negotiators are making “good progress agreeing new arrangements for financial services.” However, “negotiations are ongoing and nothing is agreed until everything is agreed,” it added. Nevertheless, reports of a possible financial services deal between the EU and Britain will definitely ring in optimism for investors.

In this context, focus has shifted to companies domiciled in the United Kingdom. Some such companies include BP p.l.c. (BP - Free Report) , OneSavings Bank PLC (OSVBF - Free Report) , Ashmore Group (AJMPF - Free Report) and Rentokil Initial PLC (RTOKY - Free Report) . Rentokil Initial has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Conclusion

According to a University of Sussex’s U.K. Trade Policy Observatory report, the United Kingdom has witnessed significant declines in its FDI since the Brexit vote. Brexit-related uncertainty is expected to weigh on overseas investment in the mid to long term. However, all is not lost for Britain following a report that the European Union and Britain have agreed on a financial services deal.

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