The UK remains the world’s second most significant financial centre but the Brexit effect is starting to dent its performance, a new report suggests.
The UK is still the largest financial centre in Europe and the second globally, New Financial analysis shows, streets ahead of European competitors.
But Asian markets are on the march, with China, Japan, Hong Kong and Singapore all beginning to nip at the capital’s heels.
London’s performance is particularly strong in trading and clearing and is by far the biggest market globally for FX and derivatives trading, and the second biggest for clearing and foreign equity trading.
However it still lags behind the US, which has a score of 84 on the index compared to the UK’s 35, and there are concerns activity here has started to stagnate since the Brexit referendum.
While the UK is one of the most international financial centres in the world, it is much smaller as a domestic financial cetre. It ranks fourth after the US, China and Japan, with a score of 14, around the same size as France.
New Financial found domestic activity has declined somewhat since the referendum with average growth in the UK at zero per cent compared with 16 per cent globally and 14 per cent within the EU.
Indeed in certain sectors the UK’s lead has already been dented. In foreign equity trading, most EU trading has already relocated back to Europe. Non-UK banks are moving or have moved more than £700bn in assets, the think tank said, and other sectors could be affected by Brexit including foreign direct investment in financial services.
A report by New Financial published in April showed Dublin had been crowned the most desirable place for City jobs, with 135 firms relocating business to the Irish capital due to Brexit.
Insurance firms and asset managers have transferred more than £100bn alone, with a third of all asset management firms transferring to Dublin post-Brexit.
While the UK has lost market share in both domestic and international activity, the EU has also lost market share across the board as Asian markets play catch up.
China is the world’s second largest market for domestic activity which offsets its low scores in international financial activity. Japan is the world’s third largest domestic market and in the top five for all but two domestic financial activity metrics.