Well, what a year 2016 has proven to be.
The UK is preparing to leave the European Union; the US – one of the world’s largest importers – is preparing to welcome a protectionist President; while impending elections in France and Germany could potentially deliver political earthquakes.
It will certainly go down in the history books. As I write my last column for 2016, it’s a good opportunity to review where the UK stands, particularly on Brexit.
As you’d imagine, firms have undertaken a significant amount of contingency planning ahead of official divorce proceedings. With the government remaining tight-lipped on negotiations, they have been planning for the worst while hoping for the best.
They have to have plans in place for a worst case scenario – the UK with no special access to the Single Market or bilateral trade agreements in place, among other things. Some have already applied for licences outside the UK in case they need to move parts of their business, and most have prepared detailed plans for any necessary restructuring of their companies.
At a time when UK firms are assessing their options, some cities are posturing like birds of paradise usually found on a David Attenborough programme. Regulation is being simplified, taxation is being made less, well, taxing, and even labour laws are being re-evaluated. Donald Trump has aired his intention to dismantle part of Dodd-Frank – Washington’s answer to ending “too big to fail”. Whether his plan comes to fruition or not, only time will tell.
Despite the great lengths other cities are going to, there’s a desire for firms to stay in London. Not for any sentimental reasons – facts and pragmatism in contingency planning reign supreme; emotional and historic ties count for very little.
Instead, shifting elements, or indeed an entire business to a different country, is no mean feat. London is entrenched in financial services and has built a complex web made up of a critical mass of trading activity, world-leading talent and well-established infrastructure. The significance of the latter was reiterated in a recent report which found that the cost of moving ultra-high speed fibre-optic cables – which link London and New York’s foreign exchange centres – would simply be too expensive, in the short term at least.
Financial firms that aren’t as tied to London, such as startups or digital challenger banks, aren’t necessarily waiting for news on negotiations: recent data shows that, since the referendum, five London-based companies have moved to Berlin. With more than 98 per cent of companies in the City made up of SMEs, it is incredibly important that smaller firms see the merit of remaining in London.
Other sets of data show that jobs in the UK have dropped for the first time in more than a year in the months following the referendum. This reflects firms’ nervousness ahead of what will be an incredibly challenging couple of years.
But what can we expect from 2017? Quite simply we should expect the unexpected. Could legalities provide further hurdles for Theresa May? Possibly. How much of her plan will the Prime Minister detail before triggering Article 50? It’s anyone’s guess. Will there be a period for transition? If the UK’s financial services sector is to retain its crown, we would certainly hope so. But we can be certain that the City will, as it always has, adapt such that it remains the world’s pre-eminent financial centre.