London loses over 7,000 finance jobs to EU post-Brexit

More than 7,000 jobs in the financial services sector have moved from London to the European Union as a result of Brexit, according to the latest Brexit tracker from consultancy EY.

This estimate is a decrease of 400 from the total anticipated in December, and is down from the 12,500 job moves forecast by firms in 2016.

EY noted, however, that 44% (97 out of 222) of the largest UK financial services firms have moved or plan to move some UK operations and/or employees to the EU since the referendum.

“Staff and operational moves across European financial markets will continue as firms navigate ongoing geopolitical uncertainty, post-pandemic dynamics and regulatory requirements,” said Omar Ali, EMEIA financial services leader at EY.

Dublin is the most popular destination for employee relocations and new European hubs or offices, with 36 financial services firms announcing intentions to relocate UK operations and/or staff to the city. Luxembourg is in second place, attracting 29 companies, followed by Frankfurt with 23 companies and Paris with 21.

Paris scores highest in terms of attracting jobs from London, with a total of around 2,800, followed by Frankfurt at 1,800, and Dublin with 1,200.

The tracker also shows that since the referendum, 24 firms have publicly declared they will transfer just over £1.3tn of UK assets to the EU. There was a last-minute increase in firms announcing asset moves in the months before the end of the transition period on 31 December 2020, when it became clear that the UK-EU trade deal would not offer concessions for the UK’s financial services sector.

Brexit ‘causing extra costs and delays’ for UK firms

UK businesses have seen increased costs, paperwork and border delays as a result of Brexit, MPs have said.

The European Union introduced full import controls at the end of the transition period on 31 December 2020.

A report by the the Public Accounts Committee said that since then, although UK trade volumes been suppressed by the impact of Covid-19 and wider global pressures, “it is clear that EU exit has had an impact, and that new border arrangements have added costs to business”.

The spending watchdog added that it has “repeatedly raised concerns about the impact of changes to trading arrangements on businesses of all sizes and we remain concerned”.

Britain’s implementation of post-Brexit import controls has been delayed three times over the past year.

“One of the great promises of Brexit was freeing British businesses to give them the headroom to maximise their productivity and contribution to the economy — even more desperately needed now on the long road to recovery from the pandemic,” said Meg Hillier, chair of the Public Accounts Committee.

“Yet the only detectable impact so far is increased costs, paperwork and border delays.”

Hillier added that the UK government should be doing more to understand and minimise the current burden on those trading with the EU, to address the immediate delivery and readiness risks in introducing import controls, and to have a border in place that operates effectively without further delays or temporary measures.

Brexit-related exodus of financial services jobs and assets slows down

UK financial services firms are continuing to move jobs and assets to the European Union but at a slower rate, the EY Financial Services Brexit Tracker shows.

According to the latest data, 95 of the 222 financial services firms monitored by the tracker (43%) have publicly stated they have moved or plan to move some UK operations and/or staff from the UK to Europe. This takes the total number of job relocations since the EU referendum to almost 7,600, up from 7,500 in October 2020.

An estimated total of almost £1.3trn of UK assets will be transferred to the EU by financial services firms as a result of Brexit.

“After the major hurdle of standing up new EU hubs, the days of significant swathes of asset and job relocation announcements appear to have passed and will likely be replaced by the slower yet ongoing movement of people and assets to Europe for compliance purposes,” said Omar Ali, EMEIA Financial Services managing partner for client services at EY.

Dublin and Luxembourg remain the most popular EU destinations for staff relocations, new European hubs or office relocations.

Meanwhile, over a quarter (26% and 57 out of 222) of firms have publicly stated that Brexit is impacting or will negatively impact their business, up from 49 firms in January 2020.

With the negative financial impact of leaving the EU still being felt in the financial services sector, firms have called on the government to ensure the UK maintains a cooperative trading relationship with the bloc.

Since late December 2020, four global wealth and asset managers with combined assets under management of over $10trn have called for greater clarification over the UK’s future regulatory regime, arguing for greater alignment rather than divergence from Europe, focused on establishing a flexible, cooperative relationship with the EU.

“Specific policy work to align the UK and its closest trading partner remains crucial and will be mutually beneficial – uncertainty has been a thorn in the sector’s side for nearly five years,” Ali added.

Long-term impact of no-deal Brexit ‘worse than Covid-19’

Leaving the European Union without a trade deal would have a bigger impact on the UK economy in the long term than the damage caused by Covid-19, the Bank of England governor has warned.

Speaking to MPs on the Treasury Select Committee, Andrew Bailey said that a no-deal Brexit would cause disruption to cross-border trade and damage the goodwill needed to build a future economic partnership.

If the UK fails to agree to a deal before the Brexit transition period expires at the end of December it will revert to World Trade Organisation tariffs and trade barriers with its biggest trading bloc.

The central bank governor acknowledged that the fallout from the pandemic and the second national lockdown in England was having a greater short-term impact on the economy.

But he argued that in the longer term, the economic cost of leaving without a deal would be larger than the cost of Covid.

“It takes a much longer period of time for what I call the real side of the economy to adjust to the change in openness and adjust to the change in the profile of trade,” Bailey said.

In September, an analysis by the London School of Economics and UK in a Changing Europe concluded that the long-term economic impact of a no-deal Brexit could be two or three times as large as that of the pandemic.

Housing price slowdown in Q1 2019

The Halifax survey of British house price growth shows a slowdown in the first quarter of 2019 in annual terms and a subdued outlook, according to Reuters.

Uncertainty about Brexit and high property prices were cited as key factors behind the trend. Compared to the same period in 2018, prices rose by 2.6% whereas the three months to February showed a 2.8% rise.

A Reuters poll of economists indicated an annual rise of 2.3% could be expected for the first quarter. A recent Nationwide mortgage lender survey found house prices had increased somewhat.

The housing market in London is particularly weak, with Brexit uncertainty poised to have a particularly strong impact in the capital. Shortly before the 2016 referendum house prices were rising by around 10% per year.

Halifax says that in March, in monthly terms prices were falling by 1.6% after a 6.0% increase in February. Halifax’s index has tended to show a more marked variance than other polls in recent times.

UK consumers rising despite Brexit fears

January saw increased borrowing by British households, indicating that private individuals in the UK have more confidence in the economy than businesses, according to Reuters.

The month saw the largest number of mortgages approved for house purchase than any forecast in a Reuters poll of economists, reaching 66,766 in January. In December the figure was 64,468.

In the same period, consumer borrowing increased almost £1.1bn, also exceeding the predictions of the Reuters poll.

The annual growth rate in unsecured consumer lending was reduced to 6.5%, the weakest level in four years, according to figures from the Bank of England.

The economy of the UK has slowed sharply in anticipation of Brexit, which is officially scheduled to occur at the end of March. UK Prime Minister Theresa May recently opened the way for a delay to this leaving date, subject to approval from parliament.

The UK manufacturing sector slowed in February, according to a recent survey.

No deal Brexit could push UK house prices down 3%

A Reuters poll has revealed that Brexit is likely to result in a modest change in UK house prices, with London properties being impacted to a greater degree.

A no-deal Brexit would likely result in a 3 per cent decrease in London house prices over 6 months, while national property values would drop by 1 per cent. The survey was carried out between 13-20 February 2019.

Tony Williams of property consultancy Building Value said: “There will be a palpable shock to the UK economy in terms of GDP, inflation, job creation etc.

“This will spill over dramatically to the residential market, with London bearing the brunt given the international catchment of prospective buyers.”

Williams predicted that London property prices would fall 10% in the event of a no-deal Brexit.

However, a dramatic Brexit could see the value of Sterling fall 5-10 per cent, which would make investment more attractive to overseas buyers and offset some of the market problems.

Another poll said UK property prices would rise 1.5% in 2019 and 1.8% in 2020, a fall from earlier predictions. In London, property prices are predicted to fall 2.0% in 2019.

UK austerity could last years more, says IFS

Public services in the UK may face a financial squeeze for years to come according to the Institute for Fiscal Studies (IFS), as reported by Reuters.

Finance minister Philip Hammond has indicated a softer fiscal stance toward managing the economy, but the think tank has cast doubt on the ability to ease austerity policies in the near term.

Hammond’s half-yearly budget update is due to be revealed on 3 March, with details of the money available for public spending. The UK is due to leave the European Union two weeks later, but the terms of the departure are still unclear.

The October annual budget showed Hammond giving more support to the economy, with higher spending levels. However, spending more on healthcare has left little to spare for other public services.

IFS research economist Ben Zaranko said: “This suggests yet more years of austerity for many public services – albeit at a much slower pace than the last nine years.”

Outside of health, defence and overseas aid, departments saw spending levels fall by an average of 3% per year in real terms after 2010. The outlook is for 0.4% annual falls in spending in inflation-adjusted spending, according to the IFS.

A statement from the finance ministry said: “The (finance minister) has said that hte Spending Review will take place in 2019, and that is the right moment for government to make long term funding decisions.

“Outside the (health service), total day to day departmental spending is now set to grow in line with inflation, and public investment will reach levels not sustained in 40 years in this parliament.”

Survey reveals little appetite for UK investment

The appetite for financial risk among British businesses has fallen to its lowest level in a decade, according to a survey by accountancy firm Deloitte reported by Reuters.

The survey indicated that investors are deterred by fear of a hard Brexit and increasing US protectionism.

The UK is less than eight weeks away from the supposed date of an exit from the European Union, but the terms on which the exit will take place remain unclear after a transition deal brokered by the Prime Minister was rejected by the House of Commons.

Without a deal, Brexit may proceed without transition arrangements, which leads many to fear severe problems with supply chains and delays at ports.

Deloitte chief economist Ian Stewart said: “Corporates are positioned for the hardest of Brexits, with risk appetite at recessionary levels and an intense focus on cost control.”

Another survey, issued by the Institute of Chartered Accountants in England and Wales (ICAEW) showed a similar sentiment, indicating Q1 growth of just 0.1 percent, the joint-weakest since 2012.

The Deloitte survey found that 78% of the 100 companies taking part said they feared Brexit would damage the economy in the long term, whereas only 10% expected a improvement.

Businesses ask politicians to ‘get a grip on Brexit’

Businesses have asked UK politicians to ‘get a grip on Brexit’, amid continued uncertainty over the future relationship with the European Union, according to Reuters.

Businesses are stepping up preparations for the event of a no-deal exit while some large companies are setting up emergency rooms to deal with the chaos of leaving without adequate trade provisions.

By law the UK is due to leave the EU on 29 March 2019, but there is as yet no agreement on the terms of leaving will be. In a parliamentary vote, MPs rejected the withdrawal agreement negotiated by Prime Minister Theresa May.

Leaving the EU without a deal could result in ports facing significant delays, damage to supply chains and shockwaves in financial markets.

The UK shipping industry’s representative body, the UK Chamber of Shipping, said through chief executive Bob Sanguinetti: “We need to put aside party politics and in the moment of need that we find ourselves in, we need to look at the bigger picture and look at what’s best for the country.”

James Stewart, head of Brexit at KPMG, said: “may of the businesses we’re speaking to are praying for an extension to Article 50. Nearly all larger firms are now preparing for Brexit, after some came late to the party – however the timing of no-deal implementation planning remains highly variable.”

Possible resolutions to the crisis include a no-deal Brexit, a last-minute agreement on an amended deal, a delay, a fresh general election or a referendum re-opening the question of Brexit altogether.