23 June 2022 marked six years since the vote of the UK electorate to leave the European Union (EU). Unsurprisingly, the debate about the relative merits of Brexit and the state of the project so far continues to rumble on – both within and outside the UK.
But what has the impact been to this point on the UK’s renowned financial services sector? How have UK households been affected? And what are the likely prospects for the country looking forward?
A significant effect on the UK economy…
Even prior to Brexit itself taking place, and the change in the economic relationship between the UK and the EU that occurred with the Trade and Cooperation Agreement (TCA) taking effect in January 2021, plentiful evidence pointed to the referendum result having had a noticeable impact on the UK economy.
As noted by Dr Swati Dhingra and Dr Thomas Sampson for the independent research organisation UK in a Changing Europe, the available evidence suggests that the UK economy was already approximately two to three percent smaller at the end of 2019 than it would have been if the referendum result had been in favour of the UK remaining in the EU.
Such a decline would amount to a loss of GDP of between £650 and £1,000 per person per year. It has also been estimated that the Brexit vote caused a 2.9% increase in the country’s consumer prices, adding about £870 to the average household’s annual cost of living.
…and financial services have not been immune
There has been both good news and bad news so far on the subject of how the UK financial services sector has dealt with the implications of Brexit.
On one hand, there was furious debate around the time of the referendum campaign in 2016 about the likely effects on financial services of a victory for the ‘Leave’ side. With London being one of the world’s premier financial centres, concerns at the time focused on whether a ‘Brexited’ UK would lead to the capital city missing out on talent, resources and investment – to the benefit of competitor cities in the EU.
Fast-forward to 2022, and we have had a relatively harder Brexit than many might have predicted in 2016, with the UK having departed both the EU and the European Single Market.
Despite this, a Parliamentary report published recently by the European Affairs Committee concluded that the overall post-Brexit outlook for the UK’s financial services sector was a “positive” one.
The Committee said that the number of financial services jobs that had moved from the UK to the EU as a consequence of Brexit – an estimated 7,000 – was far lower than the approximately 75,000 jobs that some had anticipated in 2016. This has enabled London to retain its status as the second biggest financial centre in the world, amid confidence about the sector’s resilience.
But the Committee also found that some significant challenges remained, which led it to warn the Government against becoming complacent. It urged the Government to ensure it took an approach to the financial services sector that benefitted the wider UK and its economy, rather than merely the City of London. In addition, the Committee emphasised that it was not yet clear whether the impact of Brexit on the sector had fully played out.
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