Workers in the square mile should brace for deep cuts to both bonuses and jobs with economists warning that faltering deals, stalled IPOs and market difficulties will take an extreme toll on the City over the coming months.
No fewer than five separate bodies have issued downbeat forecasts about the state of London's dominant banking sector and the wider British economy today, compounding fears that poor performance in the capital could drag Britain’s economy back into the mire.
“The City seems to be in real economic trouble,” said Douglas McWilliams, president of the Centre for Economics and Business Research (CEBR).
“Banking activity has been pretty flat, stock market turnover is down about a fifth in a year, M&A is a disaster zone. As these activities disappear, measured productivity for the UK will fall”, he said, also predicting that 2016 would see bonus payouts for City workers “collapse” amid “a lot of layoffs”.
“It is probably the most miserable time for banks for some time,” added Vicky Pryce, chief economic adviser at the CEBR.
“We’ve seen a lot of signs of slowing down. There seems to be a general malaise about the health of financial services”, Pryce told City A.M., pointing to turbulence in the wake of the decision to raise US interest rates, ongoing headaches caused by global turmoil and the difficulties posed by negative interest rates in Europe.
The scale of the slowdown has also been shown by the latest IPO monitor from accountancy giant PwC – published today – which shows that 2016 has seen the weakest start to a year for new listings since the depths of the financial crisis.
Global proceeds from IPOs have shrunk by two-thirds to £10.1bn in the last 12 months, and Europe has already seen nine potential listings postponed or withdrawn. The value of new listings in London has fallen by half since the end of last year.
Warnings over the health of London’s giant financial services industry have soured outlooks for the rest of the economy.
“You can’t have a functioning economy without finance,” Pryce said. “Funding for investment and finance from the banks has been declining and only recently begun to recover. That affects economies all round as SMEs don’t get the finance they need.”
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The Lloyds/Markit purchasing managers’ index (PMI) – also published today – shows the slowest growth in new business activity since February 2013, while a report from accountants BDO warns about a stuttering service sector. Adding to the gloom, a survey of more than 8,500 firms for the British Chambers of Commerce (BCC) provides yet more evidence of “softening” economic growth across the board.
BDO said that “the slowing services industry is taking its toll on the UK economy”, as its business confidence index sunk to 99.4 – where 100 represents the long-term average.
David Kern, chief economist at the BCC, said he expected “the vibrant and dominant services sector to face mounting challenges in the next few years”.
The number of businesses that took on new staff, increased investment or boosted sales all dropped over the first quarter of the year, according to the BCC’s quarterly economic outlook.
The series of warnings follow the National Institute of Economic and Social Research (Niesr)’s forecast that the slowdown may already be happening, as it predicted Britain's economy grew by just 0.3 per cent in the first three months of the year – down from 0.6 per cent in the final quarter of 2015.