London, at the heart of the UK’s service sector economy, may lose up to £9.5bn in economic output a year from Brexit.
And it could be worse if a post-Brexit deal on financial services doesn’t eventuate, research out this morning finds.
Financial services, which was carved out from the post-Brexit trade deal between the UK and the EU, may account for more than £2bn in lost GDP per year.
Mayor of London Sadiq Khan has today published an analysis of the Government’s Brexit trade deal from a London perspective by the Centre for Economics and Business Research (CEBR).
The wider services sector – which includes everything from law, finance and fintech to hospitality and creative jobs – makes up 80 per cent of the UK’s economic output.
London accounts for nearly half of the UK’s export earnings from services.
Since 1 January, the City has relied on a patchwork of bilateral financial services deals with member states, while a Memorandum of Understanding on financial services is worked through.
However, the City won’t replicate the same advantages it had before Brexit in the event that it does secure an equivalence deal.
The Square Mile’s banks and traders have prepared for the increase in red tape, leading to an estimated £1 trillion in assets and thousands of jobs moving from London to EU financial capitals since the 2016 Brexit referendum.
The wider professional services industry, such as law, real estate, marketing and creative enterprises, would also lose out if the City of London’s status as Europe’s premier financial services hub was damaged, the report indicated.
UK’s Brexit deal ‘a no-deal for City’
Khan said of the CEBR’s prediction for London: “Whichever way you slice it, the Government’s Brexit trade deal was the equivalent of a ‘no deal’ Brexit for financial and professional services, and our businesses now face a costly red tape mountain caused by the UK having to trade with the EU as a ‘third country'”.
The mayor is currently lobbying Number 10 to agree with Brussels a deal for financial services grants UK firms greater access to EU markets, so long as the two territories stick to equivalent regulations of financial services.
“For the good of London and the UK’s economy, the Government should have been focussed on getting a deal that protected these industries – and this report reveals the staggering losses that London could face as a result of the trade agreement,” Khan said.
“These losses could be even higher if the Government fails to secure additional agreements with the EU on hugely important areas of regulatory equivalence.”
Josie Dent, managing economist at CEBR said: “Our research highlights the large impact that Brexit has had on the services sector in London. With financial services and associated professional services accounting for 15 per cent of London’s GDP, the success of this industry is key to facilitating economic growth in the capital”.
The London Chamber of Commerce and Industry said the Square Mile was effectively handed a “no-deal” Brexit for services and the Government should move at pace to rectify this.
“”These figures prove that it is imperative that the Government and the EU work rapidly towards an agreement enabling financial and professional service companies to have free and fair access to each other’s markets.”
However, other London grandees are less fazed by the lack of comprehensive cross-Channel services deal.
Last week, Barclays Boss Jes Staley said the UK should look beyond job losses from London to Paris and Frankfiurt and instead compete with the US and Asia.
“I think Brexit is more than likely on the positive side than on the negative side,” he told the BBC.
“What the UK needs and London needs is to make sure that the City is one of the best places, whether in terms of regulation, law, language or talent.”
“What London needs to be focused on is not Frankfurt or Paris, it needs to be focused on New York and Singapore.”
Dame Helena Morrissey, the Tory peer and former investment boss at Legal & General said many economic predictions of the City post-Brexit assumed dealmakers and business would “stay static” without EU access.
“Of course that’s not how the City operates! It has been innovative and never relied upon the EU for that innovation and its global perspective”.
“If we don’t get a deal we will see regulatory divergence (the Bank of England has already made that clear) and there will be great opportunities from that.”
Although Dame Helena suspects there will be a UK-EU deal on financial services, “the talent, the infrastructure, the ‘cluster’ remains in London and that is what we need to keep offering what the world needs in financial services”.