European Brexit battle heats up: London set to continue outpacing biggest rivals despite efforts to claw away City jobs

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The UK voted to leave the European Union on 23 June 2016 (Source: Getty)

London will continue to outpace its biggest financial rivals in Europe despite increased EU efforts to claw at the City’s supremacy.

The UK capital’s GDP is forecast to grow at a rate of 2.3 per cent annually between 2017 and 2021, ahead of Paris’ 1.6 per cent and Frankfurt’s 1.5 per cent, according to an Oxford Economics report out today.

The study has emerged at a time when both Paris and Frankfurt are battling hard to soak up some of London’s financial sector supremacy, with both cities hoping to lure thousands of jobs as a result of Brexit. More than 20 financial services firms have committed to expanding their operations in the two cities.

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Paris Europlace, the body which promotes the city’s financial services offering, claims to have nailed down more than 2,300 job commitments as a result of Brexit so far, and is aiming for 20,000 in the longer term. However, its current tally has been disputed by EU city rivals.

Frankfurt has emerged as the biggest financial services winner from Brexit so far, and is expecting to claim up to 10,000 jobs in the longer term. Morgan Stanley, Citigroup and four Japanese banks have said they will be setting up operations in the German finance capital in recent weeks.

In addition, City A.M. has learned that Lloyds Bank is considering bulking up its broker-dealer business in Frankfurt so that it can continue to service EU clients. This expansion would be in addition to a new EU base in Berlin and would create a small number of jobs, likely to be in double figures, sources said.

Dublin and Luxembourg are currently seen as the next biggest winners from Brexit in financial services. The Irish capital, which is forecast by Oxford Economics to grow at faster pace than London in the coming years, at 2.7 per cent, has won commitments from 15 companies, ahead of Luxembourg on 11.

Decisions to move jobs and operations have, in general, been made so that firms can continue to service EU-based clients when the UK leaves the EU in March 2019.

Read more: Brexodus? One year on, what banks have said about Brexit and job moves

Last week, another threat to the City of London’s financial services supremacy emerged when it was revealed that EU officials are considering imposing strict new rules on banks at the heart of EU government borrowing. These would require banks to move significant operations to within the bloc and put an end to “passporting” from the UK.

According to Reuters, EU authorities may introduce similar rules to those of the US, which require primary dealers in US Treasuries to base their operations domestically.

The proposed move was slammed by the City. Anthony Belchambers, chairman of the advisory council of the Legatum Financial Services Forum, told City A.M.: “However we address the systemic risk concerns of the EU institutions over a post-Brexit UK, the nationalistic drivers of those same institutions will continue unabated – and they have the power to deliver.

“The EU wants to scalp the City and lose the dependency – and we should not underestimate their determination to achieve this.”

London MEP Syed Kamall said: “Some banks exiting the primary dealing business will result in higher borrowing costs for some EU governments.

“Fewer primary dealers could also lead to a concentration of risk, something we’ve all been trying to avoid since the last financial crisis.”

A City of London Corporation spokeswoman stressed the district’s “unparalleled” expertise in this field.

“Any locational policies could have significant cost implications for the customer, and so it is important that politics doesn’t overshadow the business argument for remaining in London,” she said. “The priority should be that this function should continue without posing risks to financial stability and for activity to take place where it can do so most efficiently for the benefit of customers.”

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