Brexit set to give the City of London a ’70s makeover
This has profound consequences for Britain and Ireland as we travel the journey ahead of and beyond March 2019 when Brexit is scheduled to take effect.
The root problem for Britain is its relationship with the global financial system and its long-term investors. An extended period of pro-business and liberal trade policies convinced financial institutions worldwide that the UK was a stable, commercially sensible country.
An implicit contract was signed between the UK and these investors which said, in exchange for stability and access to global markets including Europe, long-term investments would be made.
Since the 1970s big financiers have grown bases in Britain, and particularly in London, that created a physical centre which boomed. Tens of thousands of direct and indirect jobs were created as these companies developed relatively complex financial services activities designed for scale.
These operations served customers within the UK but increasingly reached out to markets opened by free trade agreements.
The rest of Europe was part of that marketplace but so too were those countries that signed major deals with the EU that allowed UK-based companies access new markets abroad.
As all this unfolded London became recognised as a trusted global hub in which these financial institutions could recruit and expand high paid jobs. In turn, these fed an eco-system of housing, retail, restaurant, hotel and service industries.
A multi-ethnic population evolved to help London brand itself a true world city. The evolution of the Internet further helped London connect across the world while keeping its physical heart in the capital of Britain.
This incredible achievement by the UK has been holed below the waterline by Brexit. The trust invested by huge investors in London has been broken because the seamless links to enormous marketplaces have been severed.
Not only are there immediate consequences from all this but I believe fundamental long-term damage has been done to Britain’s reputation in attracting high value investment. If the financial services industry, a jewel in the UK’s economy, can be treated in such a tardy fashion how is any other business expected to think about the long-term?
There will be little forgiveness among hard headed businessmen and women as they decide their next moves in the UK and especially in London. Most of this will be as low profile as possible because these companies understand the political sensitivities involved.
Nonetheless, any self respecting risk manager in a global finance house will advise to start a process of migrating existing operations and diverting new investment streams outside the UK. There are two key reasons to do this; to ensure full access to the world’s biggest financial services market – the EU, and; to not repeat the strategic mistake of choosing just one location — London — as a place to hold all your eggs.
This process is only starting but the events of the past two weeks will accelerate it. For a long period you will hear, without much fanfare, blue chip financial companies building up operations in a variety of centres across Europe. At the same time, the pace of inward investment to London by these companies will fall sharply. The consequences for the UK’s capital are stark.
Without a steady drum beat of new jobs and investment in London the city risks reverting to the condition it was in during the early 1970s before financial services flooded in.
Then, London’s physical infrastructure was poor, its breadth of industries was narrow and a succession of political crises fed regular bouts of economic weakness. If London suffers the entire UK economy will inevitably struggle too. This is why the whispers about reversing Brexit are getting louder every week.
