London is likely to remain a leading global financial centre even in the most adverse Brexit scenarios, the Central Bank of Ireland has concluded in a new report.
The EU-based Central Bank has said that even in the worst possible outcome of Britain’s departure from the EU, the impact on the capital’s financial and related professional services industry could be very small due to the so-called premium London enjoys.
However, the report warned that London’s current status could be dented by both a possible deterioration of perceptions, and any abrupt changes in regulation and centrality due to new trading arrangements.
The report concluded that while “a less open, productive and rich UK might influence the future path of the City, according to our analysis, the impact of fundamental factors could be very small”.
In recent months the Square Mile’s future has been thrown into the spotlight amid rising expectations of a potential no-deal Brexit.
London will remain Europe’s leading financial centre whatever happens with BrexitMiles Celic, chief executive of TheCityUK
Last month the Bank of England echoed some of today’s findings, saying that Britain’s banking system was still resilient to the financial consequences of a worst-case disorderly Brexit.
However, fears of waning investment in markets such as commercial property have been raised in recent months following speculation that Britain and the EU will not reach a deal by 31 October, when Boris Johnson has pledged to deliver Brexit with or without an agreement with Brussels.
“The Central Bank of Ireland’s report provides independent and authoritative support to what we have said for some time. It concludes that London will remain Europe’s leading financial centre whatever happens with Brexit, but it also warns strongly against complacency in the longer term,” said Miles Celic, chief executive of The City UK, a body and industry advocacy group promoting the financial and related professional services industry.
He added: “This industry is a vital engine for the larger vessel of the UK economy. If the UK gets Brexit and the longer term political and economic direction wrong, the entire economy will be heading into choppy waters.”
“This report also reinforces the significant concerns the industry has raised about the financial stability risks of European financial market fragmentation. We urge the UK government, the EU and regulators to work together to find a way to keep markets open and competitive. This is vital for European businesses to continue to access the capital and professional services they need to grow and succeed.”
When comparing London to other European financial centres, the report also noted that in non-bank finance, the City “leads by a big margin in many sectors, especially in market infrastructure”.
“The prominent role of London in FX transactions and OTC derivatives is well established, accounting in 2016 for nearly 40 per cent of global interest rate derivative turnover,” the report added.
“Continental European financial centres are much smaller and more specialised in non-banking activities. Amsterdam for example is specialised in insurance, while Dublin and Luxembourg are specialised in investment funds. Finally, some European financial centres are hosted in relatively small cities, highlighting the importance of looking at both relative and absolute numbers and indicating intrinsic constraints to growth.”