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Few City Blues on Brexit

The City of London was meant to be one of the big losers from Brexit but three years on from the referendum City firms regard themselves as fully prepared and no longer focus on the issue. Less than 1500 jobs have been moved, less than 1% of City employment.

Many of you will know how one-sided the Financial Times has been on Brexit. It would not have been at all excessive to regard the paper as ‘remain central’. At times the language has bordered on incendiary and very often it has been at least over-excited. This is important because the FT is an enormously well-respected newspaper in business circles and has a wide international reach. If politicians and people in countries like Germany struggle to understand Brexit, the FT will have contributed to their lack of appreciation of the British leaver’s case. We have written on some of its worst pieces but there have been too many for us to keep up with.

Our impression has been that the FT’s overall coverage of Brexit has moderated a little in recent months, perhaps as the ghastliness of the Withdrawal Agreement has been recognised, alongside a parallel recognition that preparations for no deal make this a less scary proposition that the FT had previously warned about. Perhaps also, the solidity of popular support for Brexit, and indeed for no deal, have focussed minds at the FT on the importance of democracy.

One particularly well-regarded section of the FT is the Lex column which comments in a non-political way on the prospects of individual companies. A need to be precise and accurate precludes generalised comments on Brexit although mention might be made of particular aspects of Brexit if they impact on specific firms. It is thus significant that the editor of the Lex column, Jonathan Guthrie, recently wrote an optimistic article on the future of the City of London.

A general view he said would be that “the future of the City has never looked more uncertain”, but “inconveniently, this does not appear to be true”. In particular, financial markets, which are meant to predict the future, are not forecasting ‘a Square Mile meltdown’. The pound, a bellwether for the UK economy, may be weak, he says, but the stock market, biased towards the international businesses in which the City specialises, is strong.

More specifically, he repeats the recent FT calculation that City businesses have moved only a trickle of jobs to other financial centres in anticipation of Brexit. This, Guthrie says of the less than 1,500 jobs involved “is peanuts compared with a workforce of more than 300,000. It is also chopped liver measured against 75,000 job losses estimated at the top end by Oliver Wyman and once quoted approvingly by Mark Carney, the governor of the Bank of England”.

Although Guthrie does not say so, even this small number of jobs is likely to consist mainly of foreign nationals previously working in the City. Indigenous Brits are unlikely to much affected. Moves are not without consequence as the FT reports. In Paris, a favourite for relocation, prime office sites are in short supply and rents are being bid up. There is also a shortage of places in top international schools.

Rents have also been rising in Germany’s financial capital, Frankfurt, even though the expected large flow of jobs from London has not materialised. The FT describes the city as ‘sleepy’ and ‘lacking London’s global buzz’. It is also located in a country where it is difficult to fire senior banking staff.

Perhaps most disappointed is Dublin which as an English-speaking city had expected huge movements of finance jobs from London. The accountancy group EY reports 28 finance companies committed to move to Dublin but the evidence is that only small teams are being set up. Even with a small number of relocations property prices in Dublin have once again become very expensive and in prime areas match London or Paris.

The City marches on, says Guthrie, although “no commercial centre should get complacent — remember how Venice bungled things in the 16th century”. But, he says, “pundits tend to underestimate the benefits of concentrating a lot of smart, skilled and self-interested people in the same place. Economists call these “agglomeration effects”. They are hard to quantify and hard to chip away at”.

Guthrie quotes Andrew Bailey, head of the Financial Conduct Authority and tipped to succeed Mr Carney as Governor of the Bank of England on the need for a Brexit settlement for financial services. However, Guthrie judges that most firms have workarounds which look as if they will suffice. A no-deal Brexit, he says, would do far more damage to manufacturing (we disagree on this) than to wholesale financial services.

Most City bosses Guthrie has talked to regard Brexit as yesterday’s news, even if it has not actually happened. Firms have made a series of contingency plans which frees them up to think about something more interesting. Expatriate Americans tend to be particularly phlegmatic, he says. The UK speaks their language and the time-zone will remain conveniently European.

Companies are still moving into London in advance of Brexit. Facebook has picked London as the place to develop the payments side of WhatsApp. Its workers will not be based in the City. Other parts of London are seen as more trendy for a tech company. But Facebook will draw on City expertise. Real financial technology is a speciality.

As employment across the UK continues to soar and unemployment falls to levels not seen since well before Mrs Thatcher came to power four decades ago, the City has moved on from worrying about Brexit. As many wise heads predicted at the time of the referendum, the UK’s financial sector is a huge source of flexibility and innovation. Brexit is just one of many challenges that the City continues to face and overcome. It seems more than likely that London will remain a top global financial centre alongside New York and Hong Kong, and far ahead of Paris, Frankfurt or Dublin.

The FT’s LEX article was brought to our attention by BfB contributor Edi Truell.

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Briefings For Brexit