UK economy risks a slowdown if Brexit confusion continues, RBS boss warns

Europe News

Howard Davies, chairman of British bank RBS, told CNBC on Tuesday that the U.K. risks a slowdown to its economy if uncertainty over Brexit continues.

In October, the Royal Bank of Scotland said it had set aside, as an impairment provision, 100 million pounds ($128 million), in order to account for economic uncertainties – Brexit being the biggest concern for the British lender.

“If we get continued political uncertainty for some period, which is now quite possible, then I think we may see a weakening in the U.K. economy,” he told CNBC’s Joumanna Bercetche at the UBS European Conference.

Davies added that the bank is seeing a slowdown in the pipeline of loan applications for investment as businesses wait on the outcome of Brexit. “If you have a choice to invest or not invest in present circumstances, I think sitting on your hands looks like a prudent strategy.”

Davies said the probability of a “no-deal” Brexit, where Britain crashes out of the European Union with no trade agreement in place, had not increased in his view.

But he cautioned, the chances had risen that U.K. leader Theresa May’s proposal, known as the “Chequers plan,” would likely fail the test of fellow lawmakers. The RBS chairman said a prepackaged deal was starting to look like an option.

“Some kind of continued customs union but nothing special for the U.K., or as people are taling about a potential Norway option,” he said.

Davies said Theresa May was sticking fast to her plan as she was likely receiving a lot of advice to say that a no deal Brexit “really could be a mess.”

“I’d be very surprised any prime minister, however ‘Brexit-enthusiastic’ they may be, faced with that advice would say well you know what you can say that, but I’m just going to go for it.”

In an indication of a return to better times, in August RBS announced the intention to pay its first dividend in a decade to shareholders since the bank was brought to the brink of collapse in the 2008 financial crisis. RBS has been a frequent court visitor in recent years but Davies said he felt the worst was over in terms of litigation.

“I think we are now back in the pack,” he said before adding “everybody has got issues of one sort or another with regulators and court cases but (there is) nothing that is going to be threatening to the integrity of the institution.”

In its latest results the bank reported lower-than-expected profit for the third quarter of this year, on the back of a “highly competitive market and an uncertain economic outlook.”

The bank posted a net profit of £448 million for the third quarter of 2018, below the £507 million expected by analysts, according to a bank-compiled average of their estimates, Reuters reported.

The U.K. lender had reported £392 million in net profit for the third quarter of 2017.