UK banks 'dangerously unprepared for early euro entry'

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The Independent Online

Preparation by the UK banking sector for Britain's entry into the euro have fallen to "dangerously" low levels, a leading City expert warned yesterday.

Preparation by the UK banking sector for Britain's entry into the euro have fallen to "dangerously" low levels, a leading City expert warned yesterday.

The high street banks in particular risk being caught out if the Government announced a snap referendum, according to a survey by the employers' group CBI and the accountants PricewaterhouseCoopers.

John Hitchens, financial services partner at PwC, said he was surprised banks were cutting back on euro-related spending in the wake of the speculation earlier this year the Government was planning an early referendum.

"Clearly the industry is holding back until it gets a clear message from the Government," he said. "That could be dangerous because if the UK were to join on a rapid timetable a lack of preparation could become quite serious."

He said a key lesson for the switch to notes and coins on 1 January this year was that countries that had made the most preparatory work enjoyed the smoothest transition.

"I think the industry could have a big problem if it decided it would wait until it was certain the UK was going in," he said. "The retail market has not even been touched yet."

Only 15 per cent of financial services firms surveyed by the CBI planned to invest in euro preparations over the coming months compared with 27 per cent in December.

The proportion of banks and securities traders planning to set aside cash for the euro also dropped by half, while neither finance houses or life insurers was planning to spend any money at all.

Andrew Duncan, another PwC partner, said it was "rather dangerous" for life insurers not to plan to spend any more money. "Given the potential for a short timescale that is perhaps rather short-sighted of them."

The British Bankers' Association told MPs two years ago a "reasonable" estimate for the cost of joining the euro would be £1bn. Figures for the 1997/98 financial year showed the UK's leading banks spent £183m on preparations.

Sir Edward George, the Governor of the Bank of England, has in the past expressed confidence that the City will adapt to the euro. But yesterday the Bank declined to comment.

The CBI's warning came as its survey showed that financial services firms were showing the first signs of a recovery after business optimism dived after11 September.

Optimism among firms improved at its fastest rate for two years, although the recovery so far has been slower than hoped for, the CBI said.

Despite signs of recovery, the financial sector is planning another major round of redundancies, the survey found.

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