_Bigger Than Brexit

The resilience of the UK economy since the EU referendum last year has surprised many commentators. Since the referendum, Wells Fargo has bought a new European HQ in the UK, and Apple has pre-let 500,000 sq ft at Battersea Power Station. Facebook has announced plans to increase its London headcount by 50% in 2017 alone, while WeWork has acquired space for four new co-working centres. 

It is often said that the UK has low productivity, however productivity in London is 40% higher than in the rest of the UK, and thus compares well on an international level. Moreover, London’s success as a business location has in recent years owed ever more to its rise as a tech and creative hub, for whom Brexit is of less concern than it is for the financial sector. Most tech and media firms are not faced by significant regulatory issues as a result of leaving the EU, so London remains an attractive place to do business. 

The TMT (technology, media and telecoms) sector overtook the financial sector on size of headcount in London back in 2013, and has been the largest source of office demand for the last six years. Further growth is expected for TMT as we stand on the brink of the coming revolutions of robotics.

Diversity is important, as ten years ago London found itself dependent upon a financial sector that was moving into crisis. This is why the issue of financial passporting into the EU is less of a concern than it would have been in the past. Certainly, if the TMT sector were to continue growing at its average rate over the next three years, this would be enough to counter balance a 15% fall in headcount for financial firms. 

In reality, the EU needs the City of London’s financial hub as the two year Article 50 timeline is not enough to replicate it on the continent. London accounts for 78% of the EU’s foreign exchange turnover and 74% of trades in over-the counter derivatives. The risks to financial and economic stability in the EU from an abrupt end to trading with the City of London are high. We expect this area of the Brexit negotiations to end in a compromise, with the City broadly maintaining its position as Europe’s financial capital.

Nevertheless, critical to the success of London is access to talented staff. The political pressure to cut immigration is high, and this is probably the main risk facing the London economy. We expect the allocation of work visas post-Brexit to be heavily biased towards skilled workers, which should ease the impact on London’s economy. Moreover, there has been discussion of a ‘London visa’, similar to schemes in Australia and Canada, where it is possible to grant immigration visas to live in a specific area of a country.

London is moving towards Brexit in better economic health than many expected back in June 2016. Its transition away from finance and towards technology and creative industries has proved well timed, although we expect the issue of financial markets access to the EU to end in a compromise. However, a working solution is needed to the problem of maintaining high skilled immigration if London is to continue to be a leading global city.