The City after Brexit

Nick Adams argues that the jury is still out over London’s post-Brexit role as Europe’s financial hub

 

The last twelve months will remain forever associated with the uncertainty and disruption caused by a global pandemic. And from a business perspective, the UK also faced an additional challenge as companies braced for Brexit. While a last-minute trade agreement avoided the further complications of ‘no-deal’, there remains huge speculation around the short and long term impact of the UK’s divorce from the EU.

 

Among the many talking points is the uncertainty around the future of London and its status as an economic powerhouse. Under normal circumstances, this would have been among the issues to dominate the news in 2020, but the discussion has been somewhat sidelined as more urgent events unfolded.

 

To recap, Brexit supporters have long argued that the UK’s withdrawal from the EU would deliver a win-win of less red tape and stronger ties with the rest of the world. To assess whether this will come to pass, it’s important to examine the context. According to The Economist, in 2017, Britain was the international finance powerhouse and dominated the export of financial services, with a surplus of £44bn. And in 2018 alone, the City generated a total of £132bn for the UK economy - nearly half of the financial sector’s total output.

 

But even before the curtain was brought down on the UK/EU partnership, there were warning signs about what may be to come for London. In 2019, for example, EY reported that London’s stock market saw the lowest number of companies to launch an IPO in ten years. More specifically, Nomura, Japan’s largest brokerage and investment bank, brought London’s status as its global wholesale to an end with staff reductions due to uncertainties around Brexit.

 

Also pre-Brexit, New Financial, a London-based think tank, reported that more than 330 firms in banking and finance had departed the UK by moving their business, staff, assets, and legal entities from the UK to Europe. Indeed, the levels of capital moving from the UK to different countries in Europe had, by late 2020, reached a reported £1.2 trillion, according to EY.

 

This has presented London’s financial rivals with a major opportunity. Dublin, for instance, has emerged as the top relocation destination for many financial firms, followed by Luxembourg, Frankfurt, and Paris. In terms of moving banking assets, Germany has become a top spot for the big players. JPMorgan, Goldman Sachs, and Morgan Stanley have between them transferred almost €350 billion from London to Germany. The ongoing uncertainty around rules and regulations could encourage more businesses to depart London, not only to other EU financial hubs, but also further afield to the U.S. and Asia.

 

Immigrant workers vote with their feet

 

London-based immigrant workers have departed the UK in numbers not seen since World War II, with one study estimating up to 1.3 million immigrants have left. And while the pandemic was a major contributing factor, Brexit has played an equally pivotal role by complicating the immigration system and ending the freedom of movement.

 

Even for those looking to return to the UK and London in a post-pandemic economy, Brexit means that the situation for many will be challenging. In fact, the UK Economic Outlook report by PwC suggests that the combined effects of Covid-19 and Brexit could result in a negative annual net migration of EU citizens in the UK.

 

Prospects for growth

 

Despite these huge challenges and continuing uncertainty, there is a flipside that may signal a more positive outcome for London’s future prosperity and growth. For instance, the European Union still suffers from a lack of solidarity, and the huge disparity in the tax and insolvency laws of individual EU member states could prove to be a barrier while creating a single, unified market.

 

What’s more, the financial expertise of major cities is highly diffused, with Frankfurt leading the way in investment banking, and Dublin in fund administration. The geographical location of the UK — in a time zone between New York and Asia — still retains multiple advantages for ambitious companies planning for international expansion.

 

More specifically, in March 2021, TrustPilot became the first European firm to list in the UK this year, raising $655 million in its London IPO. According to reporting by Bloomberg, the news is a “post-Brexit win for London” and is “helping the City solidify its position as an attractive venue for continental companies after Brexit.” This news also means companies have now raised over £5 billion via IPOs in the UK this year - close to a record first quarter, according to Bloomberg.

 

There’s also more to come, with Deliveroo gearing up for its own London stock debut at the end of March, in what could be the biggest IPO in years. In the words of CNBC, tech companies “say London’s stock market looks more attractive after a government-backed review called for an overhaul of the U.K. listings regime.”

 

And herein lies a continuing issue for London and the UK government alike. These contrasting trends suggest that the jury is still out on whether London’s pre-eminent role at the centre of European and global finance will be retained, and it’s this uncertainty that continues to cast doubt over the eventual impact of Brexit. Whichever way the story goes next, everyone involved and watching from the sidelines is in for a fascinating experience in the years ahead.

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Nick Adams is the Vice President of EMEA at Globalization Partners based in London, UK, where he leads the company’s international expansion into Europe. With a focus on building a strategic partner network and overseeing regional revenue operations, Nick comes to Globalization Partners with a wealth of experience scaling high growth businesses and is a firm believer in customer focus, integrity and teamwork; values that the company enshrines across the organisation in everything that it does.

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