As you may have heard, the UK is leaving the European Union. Early in the referendum campaign, and in the months before the triggering of Article 50, commentators feared this would be bad for business. Now we are months into the formal leaving process, what is the outlook? Will London still be the business capital, and the jobs capital of Europe when Brexit is over?
How are businesses responding to Brexit?
One way to check the effects Brexit is having on London businesses is to examine the behaviour of major businesses in the days since the decision was made.
Recent worrying moves include JP Morgan’s announcement that they are considering transferring hundreds of jobs out of London in an anticipatory pre-Brexit move. This would leave many out of work, or out of the country. Crucially, it would be a dent to London’s reputation as the continent’s centre of business; the bank is in talks with German authorities over its plans to have Frankfurt as its European base.
It’s not just big firms like JP Morgan that are anticipating a huge downside to Brexit. According to a recent survey, nearly 60% of small businesses in the UK who employ European staff are concerned that they will struggle to recruit staff after Brexit.
Sir Richard Branson has weighed in on the prospects of small businesses post-Brexit, saying if they fail to maintain access to EU markets, they will suffer far more than big businesses. JP Morgan can relocate to Frankfurt with relatively little difficulty, but smaller businesses would find it impossible. With risks like these in place, London is already a far less attractive city for businesses big and small.
What other indicators are there of change to the city’s status as business capital?
Another way to judge how much of an impact Brexit has had on London businesses is to look at the city’s commercial property market. Are businesses and investors still buying up or signing leases for London office space?
Serviced office provider i2 Office have noticed a trend towards London office space being used on an increasingly flexible basis. Though the trend at first appeared mostly to affect millennials, now businesses run by older generations are moving into serviced offices too. It suggests no one is wanting to commit to London in the long term.
Besides the growth in demand for serviced offices, there are other factors that tell us about London’s post-Brexit destiny. The talks between nations so far have suggested that London may lose its right to handle euro clearing — the process by which trade done in euros are settled. At the moment, London is the euro clearing capital of the world, but many EU insiders have suggested that Brexit will change this.
London is predicted to lose €930 billion a day if euro clearing is relocated to the continent (France is a big contender). Again, a loss like this does significant damage to the city’s prospects of remaining the European business and jobs capital it once was.
Is there a way to keep London working?
So far it doesn’t look good for the capital, so what would it take for London to maintain its position as Europe’s business capital?
One approach which has been touted is ‘Volunteerism’. This is the idea that certain UK businesses will be allowed to maintain access to EU markets if they sign up to voluntarily comply with all EU rules and regulations.
Volunteerism would allow City financial institutions to strike deals with the EU on a country-by-country basis, allowing them to continue to work together under the same set of rules, regardless of the post-Brexit deal the UK manages to secure.
The problem with this solution is that it entirely relies on the goals of European and British companies aligning with those of the European and British parliaments. With the UK’s negotiating stance appearing to be based on threats and scaremongering, it is unlikely that Brussels will look kindly upon an arrangement that allows Britain to keep its position as Europe’s financial heart.
A shift towards a more friendly approach to the Brexit negotiations could lead to many potential arrangements that keep London’s financial sector thriving, and with a general election coming up there is a chance that a change might come. Though if Theresa May increases her majority, as predicted, and if the “strong and stable leadership” she has incessantly promised looks anything like the leadership she has provided on the matter so far, perhaps London’s fate i
