Cultivated and cultured for decades, Britain has since long been a center for finance for the world over. If its nonchalant unpreparedness that it has demonstrated in the Brexit negotiations so far is of any clue, it risks losing its crown jewels, its famed financial sector, to those who have wagered it against the so-called freedom which it hopes to gain so that it can charter its own path.
With Britain set to leave the world’s largest trading bloc – the European Union jn March 2019, will it significantly and irreparably damage its most successful industries? This is the question that is causing sleepless night to British policy makers as they scramble to get their act together.
Britain’s famous financial sector, which adds nearly 12% to its GDP and plays a substantial role in the countries taxation since it pays more taxes than any of other industry, has potentially a lot to lose if it does not get passporting rights to the EU – a market of 440 million people.
Known for centuries as “the City”, London’s financial center has since long expanded beyond its traditional heartland in the City of London and now features soaring skyscrapers and plush townhouses. Although Britain has dominated global foreign exchange markets since long, Brexit’s seismic shockwave has the potential to level those extraordinary heights and bring them crashing down to one third of its size since a large majority of its transactions involve European clients.
It hasn’t taken much time, since it is not exactly rocket science, for economists and politicians to figure out that that London wil lose its preeminence as a financial center following Brexit despite the pro-Brexit camp saying Britain will benefit in the long term since it can set its own rules.
“At the beginning it is difficult to assess the true impact of what is happening because it is quite a confused picture,” said Tom Kirchmaier, a professor who focuses on banking at the London School of Economics. “These proxies will help you piece together what is going on.”
Seventeen months after Britain’s historic decision, signs of economic slowdown have appeared while those of a dramatic decline have not. Naturally, an economy as big as Britain’s is not going to come to a grinding halt and fall flat on its face. Being big and heavy, its descent is expected to be gradual and will take a dramatic turn of events to reverse.
According to Savills and Knight Frank, the two of the largest real estate firms in Britain which calculate the value of property based on all-known property deals within the City of London, the price of commercial property in the City of London have dropped more in June 2016 than it did during the global financial crisis.
According to publicly available data on passenger traffic, the number of people using the London City Airport, which is favored by executives for flights to European cities and beyond, have come down to its five year low.
However, London City Airport stated it has enjoyed record growth since 2012, although its capacity is being constrained at peak times and is therefore looking to expand.
According to Morgan McKinley, a recruitment agency, the number of available jobs in London’s financial services industry has fallen to its five year low.
It found only 51,922 new financial services jobs were created in the first seven months of this year, a 10% drop compared to the same period last year. It is also the lowest number of jobs available since 2012.
“Businesses are naturally hesitant to plan and execute growth hires due to the uncertainty around Brexit,” said Hakan Enver, a director at Morgan McKinley.
Jobs moving out from London
As per a survey conducted by Reuters that was published in September this year, around 10,000 finance jobs will either move out from Britain or will be created overseas in the coming years, if the UK is denied access to EU’s single market bloc.
As per Sam Woods, a deputy governor of the Bank of England who has reviewed the contingency plans of more than 400 banks and financial firms, said he agreed with the findings of the survey.
These findings are likely to help policymakers, industry groups and lobbies decide on their next course of action.
While London is likely to keep its place in the top rung of the financial world, it will have to fight to be there in the long run.