Much has been made of the threat Brexit poses to London’s status as Europe’s leading financial centre, but while Brexit will undoubtedly necessitate some change in the banking landscape, predictions of London’s demise as a leading banking centre are wide of the mark.
Here’s a few reasons why leaving the European Union won’t mean financial services companies up sticks to the continent.
Language, infrastructure and talent differentiate London from the competition
London is in an English-speaking country, a fundamental advantage over cities like Amsterdam and Frankfurt and, as Michael Bloomberg was keen to point out when announcing his company’s new office opening in London, the city is family friendly and has lots of amenities that mean people are willing to take jobs there.
If your family won’t live here, you can’t take a job here, so here has got to be attractive.
And London is attractive. Far more so than other European cities named as potential replacements.
As a longstanding banking centre, London has all the industry-specific infrastructure required already in place.
This established status also means that a large number of highly-skilled, specialised bankers live in London.
Not all of these people would be willing to relocate and such expertise is not easily replaced. Banks know this and will therefore not exit the UK’s capital altogether.
Healthy financial sector benefits UK and Europe – both parties recognise this
Banks from all over the globe have offices in the City, taking advantage of the EU’s so-called pass porting system to sell their services across the European Union, but Brexit will likely spell the end of the system for the UK making some movement inevitable.
A number of banks, including Daiwa, Goldman Sachs, JPMorgan, Mizuho, and Nomura have already announced that some jobs will be moving to EU member states so they can continue to benefit from passporting, but all have stopped short of announcing a complete pull out.
Simply put, London offers too much to do so, for banks, the EU and the UK.
According to MarketLine data, London’s nominal GDP in 2016 was $825.6bn, a significant 25 percent of the UK economy.
Much of this is attributable (both directly and indirectly) to the financial services sector (which contributed 7.2 percent of the country’s GVA in 2016 according to the House of Commons library) and the UK government is well aware of this situation.
It will therefore fight tooth and nail to get the best deal possible for the sector during the divorce negotiations and it should not be forgotten that the benefits of a healthy UK economy are two-way.
ONS data shows that 53 percent of the UK’s imports came from the EU in 2015, while 44 percent of its exported goods and services went to the Union.
This means that the EU sells more to the UK than it buys from it. It is simply not in the EU’s interests to send the UK into economic ruin as that will weaken a vital trading partner.
A game of hardball over the rights of banks to continue to trade freely would result in severe economic damage to a city that accounts for a quarter of its country’s total GDP.
Cooler heads should prevail and while some moves will occur, a mass exodus and a banking apocalypse will not.
Simply put, London will remain Europe’s economic centre for a long time to come.