Britain's EU Exit: What's Next for London?

Brexit Context and Stakes

• The UK's financial services sector, the country's largest single industry, relies on global talent with 11% of workers coming from abroad.
• Brexit was partially driven by domestic hostility toward London and the financial sector, creating a conflict for the Prime Minister between populism and the need to retain the industry.
• A failure in London's financial sector would have dramatic knock-on effects on the broader UK economy.
• The panel anticipates a "hard Brexit" resulting in the loss of passporting rights, which would require significant regulatory restructuring.

Panelist Predictions on Brexit Trajectory

• Carmen Sechner (Deutsche Bank): Expects a "hardish and long" exit, emphasizing the difficulty of deciding which EU regulations to recreate versus discard.
• Howard Shaw (Shaw Capital): Predicts a "softer Brexit" than initially feared, arguing that European business leaders want to trade with the UK and that the EU may unravel due to its own internal populism (e.g., recent Italian elections).
• Peter Flint (AECOM): Believes Europe will not fall apart but faces tough political times; maintains that while the exit is certain, uncertainty is currently hampering investment.
• Nick Candy (Candy Capital): Anticipates a softer outcome due to the EU's need to remain cohesive amidst rising Western populism and wage stagnation.

Financial Services Mobility and Risk

• Major banks are not yet committing to mass relocation; most survey respondents indicated they would move only 25% of activities or none, preferring to restructure rather than leave.
• Potential relocation targets for financial jobs include Dublin (the fastest to react), Frankfurt, Amsterdam, and Paris, driven by regulatory requirements for Euro-denominated clearing.
• Julian Scan (Accenture): Identifies "diversion" of talent and regulatory focus toward Brexit as the primary risk, distracting from essential productivity growth and FinTech innovation.
• While asset classes like currency trading may remain in London due to deep liquidity needs, back-office functions and specific regulated activities face higher relocation risks.
• FinTech growth faces competition from China, which has a larger consumer base for "front-end" fintech, though London retains strengths in capital depth and banking stress resilience.

Housing and Talent Affordability as Primary Threats

• London faces a critical affordable housing crisis, with average mortgages reaching 11 times salaries in London compared to 4 times 15 years ago.
• Nick Candy and Peter Flint note that housing costs and construction inflation (over 8% last year) pose a greater long-term threat to London's viability than Brexit itself.
• Proposed Solutions:
  • Accelerated adoption of modular, factory-built housing (e.g., timber-framed projects in Lewisham and Wimbledon) to reduce costs and timelines.
  • Granting the Mayor of London greater planning authority to overcome borough-level gridlock.
• The overheating of the property market is partially attributed to the devalued pound attracting foreign investors seeking yield, though the sector is stabilizing.

Immigration, Talent, and EU Relations

• Experts argue that the financial sector and SMEs require high-skilled migration to maintain growth, yet populist pressure demands stricter immigration controls.
• Howard Shaw: Contends that restricting immigration to meet numerical targets forces a reduction in non-EU talent, counterproductive to economic growth.
• Carmen Sechner: Notes that while visa costs may force back-office roles to move to cheaper EU hubs, highly specialized talent will follow job opportunities if they exist.
• University Sector: While 99% of academics voted Remain, experts argue UK universities can retain research grants and control funds currently sent to the EU (net £8-10bn/year).
• Global Competition: Berlin is highlighted as a low-cost, culturally vibrant alternative attracting young tech talent, whereas London must address housing costs to retain this demographic.

Future Economic Strategy

• Deregulation: Panelists urge the UK to seize the opportunity to cut red tape, subsidize life sciences, and support SMEs (which created 2/3 of new jobs in the last six years).
• Regional Balance: Strategy should involve pumping funds into universities outside London (e.g., Oxford, Cambridge, Edinburgh) to create economic hubs beyond the capital.
• Technological Integration: Remote work and tech disruption offer opportunities to expand financial services capabilities into UK regions like Birmingham and Bristol, reducing over-reliance on London.

European Political Outlook

• Recent Austrian elections are cited as evidence that EU membership remains popular among the populace, countering fears of immediate EU collapse.
• Long-term risks for the EU include the structural tension between the Euro's need for centralization and the populist drive for national sovereignty.
• Financial firms remain cautious about European volatility in upcoming 2017 elections (France, Germany, Italy), though some view this instability as a potential benefit for London's relative stability.