The Bank of England has recently stated that up to 75,000 high end jobs could be lost in the financial service sector following Britain’s departure from the EU. This assumes that no special deal is made over EU passporting rights for UK financial services business. A survey conducted by Reuters of more than 100 major financial sector firms based in the UK suggested that the number of job lost would be more like 10,000 while Xavier Rolet the former CEO of the London Stock Exchange put the number at 250,000.
If the UK ends its Brexit negotiations without an agreement and trading with the EU under World Trade Organisation Rules it would mean banks based in the UK will lose their special passporting rights to operate within other EU countries. Under these conditions it would be expected that the EU impose a geographic restriction on where trading in Euro denominated financial insurance products would have to be based. That means trading jobs going to other EU countries. The European Banking Authority and The European Medicines Agency have announced that they will be leaving London to set up their offices in Paris and Amsterdam respectively.
Whatever the real number of job losses the fact remains that a ‘no deal’ Brexit could see a significant part of Britain’s preeminent business sector move to the continent and with it the tax revenue.
London remains the largest financial centre in Europe with over 1 million people employed in financial services. Many believe that there will be a positive outcome to EU negotiations as the City of London supports so many EU businesses and governments in raising funds and concluding global deals. The corporations and governments of Europe will still want and need to access London’s financial markets.
A recent report by Capital Economics concluded that the impact of a ‘no deal’ would be some economic dislocation and that growth would fall below 1%. The report expects that if faced with this scenario then the government would react with a combination of low interest rates, lower corporation tax, and increased investment subsidy to the sectors most adversely affected such as farming, car manufacturing and financial services.
The report suggests that the outlook of the UK economy is good and that ‘no deal’ is not as bleak as many predict. However, they expect some form of trade deal to be agreed ahead of the UK leaving the EU as it would be in all parties’ interests. It also goes on to say that the City of London with its preeminent position as a global financial centre will endure outside the EU regulatory framework. In fact, the city could avoid the financial transaction tax helping London to lead the continent as a trading centre.
It does appear that the prospects of a softer Brexit have improved since the offer of a far greater divorce settlement. On the back of this situation investment
bankers are predicting a pick-up in investment into the UK and an increase in consumption.