When people headed to the polls for the EU referendum vote on June 23rd, 2016, few could have imagined how the negotiations and geopolitical climate would have evolved in the subsequent years.
For example, the overwhelming positivity of the Leave campaign masked many of the complex issues surrounding Brexit, from the Irish border conundrum to London’s status as one of the world’s major financial centres.
The latter is also being undermined by the Covid-19 outbreak, particularly as the labour market shifts and a growing number of people continue to work from home. But will the capital survive and continue to be a global fiscal giant in the future?
Will the EU Capitalise on London’s Issues?
Interestingly, many have questioned London’s ongoing status as a major financial hub in the wake of Brexit, especially with various EU member states clamouring to claim this mantle (we’ll have a little more on this later).
However, we shouldn’t underestimate where London stands in the current pantheon of global financial behemoths, with the UK capital holding onto second place in a respected ranking of worldwide fiscal centres.
More specifically, the British capital gained 24 points in the latest Global Financial Centres Index (GFCI), which measures the competitiveness of 111 financial hubs from across the globe.
Interestingly, London closed the gap on perennial leaders New York to just four points, creating a scenario where the former could potentially overtake the latter in the near-term.
These figures are insightful, as they actually suggest that both London and New York have actually benefited from the coronavirus pandemic, at least from the perspective of their financial reputation.
The reason for this is simple; as investors and clients have been increasingly inclined to seek out the relative safety of leading financial hubs amid the Covid-19 outbreak, eschewing emerging and less reputable centres in the process.
What About Brexit and the EU?
While London may actually be performing relatively well from the perspective of its financial reputation in the wake of coronavirus, there are some concerns about the increased focus of home and remote working.
More specifically, it appears as though city firms are interpreting government guidance in various different ways, creating uncertainty in the market and reducing financial firm’s physical presence in the capital.
According to property advisor Ingleby Trice, the square footage of newly rented office space in the city come August had dropped to a tenth of what it was when compared to the average monthly rate last year, damaging the city’s fiscal reputation and causing some to see it as a damaging and long-term trend.
This is poorly timed when you consider the potential impact of Brexit, with the EU definitely looking to solidify its own fiscal position at the expense of London.
In fact, the European Commission is set to launch a new effort to boost its capital markets in the coming days, in a bid to create greater strategic autonomy and optimise the region’s financial sector in the wake of the coronavirus pandemic (and its socio-economic impact).
The power rivalry between the US and China is also a key consideration, with the economic calendar packed full of data releases which impact across multiple regions and markets.
Cities such as Berlin are expected to compete tenaciously for business and a larger share of the global financial market in the wake of the transition period ending, with this level of competition likely to be even more intense if the UK exits without a deal.
This will definitely be an interesting space to watch in the future, with the banking relationship between the UK and the EU central to future economic growth within these regions.