The combination of the UK’s departure from the EU, and the coronavirus pandemic, has caused uncertainty across the UK business ecosystem. As the UK’s largest city and the contributor of some 22% of GDP, London has come under particular stress. The pandemic has comprehensively changed working patterns, influencing everything from the public transport infrastructure to retail, hospitality and entertainment spaces within the city. London’s primary business is the provision of business, financial and tech services throughout the world and – at least until now – to Europe.
At a time like this, the future of the city itself looks uncertain. Barely a day goes by without newspapers reporting on the departure of business from the City. Twitter is a battleground between people showing evidence that our exit from the EU is hurting British business, ranged against those whose emotional attachment to that departure seems to blind them to its negative consequences. Britain and the EU have seen drops in the exports to each other each way.
Red tape, new regulations, and the occasional piece of apparent madness (ham sandwiches taken at the EU border, HMRC expecting European companies to charge VAT on its behalf, to select one on each side) have caused real and dangerous interruptions to supply chains. One startling figure reports that “Italy recorded a 70.3% decline in UK imports in January, compared with a year earlier”. Exports to the EU fell by 40.7% in January.
We have analysed some approaches to the future of London in a previous blog.
The weaknesses and threats to London caused by the combination of the pandemic and the UK’s exit from the EU are widely known. Since we are used to using the SWOT (Strengths, Weaknesses, Opportunities, Threats) matrix in futures work, perhaps we should also consider some strengths and opportunities.
Examining the premises
Let us start with some hopefully uncontentious premises. The Brexit process has been a shambles. The withdrawal agreement came too late for people to plan, and its implementation has been chaos from day 1. Further, the Withdrawal Agreement included nothing on the services sector (the gov.uk website is quite infuriating in its guidance). While we are promised an agreement on equivalence and the recognition of professional qualifications, white smoke has yet to be seen from the Berlaymont. Euro trades have left the City to the benefit of Amsterdam. Many foreign workers have left the UK. London’s population is shrinking.
Except – at least there is a withdrawal agreement. It may be clumsy, but as with any third country, the UK is now starting to enter into an endless round of negotiations with Europe which will continue to develop as both sides see advantage. The UK government has shown itself to be prepared to bend and flex in some quite surprising ways. Euro trades order flow has started to go through Amsterdam. This change is a natural consequence of Brexit – there are many, some of which seem to surprise its greatest supporters who seem to have thought nothing would change. But Euro traders are in London, and simply directing their trades through Amsterdam. Foreign workers have left the UK in large numbers, as people have left London in large numbers because there is a pandemic. Remote working and being with your family is more important than staying. It is too early to say whether this is a permanent change or one which will reverse once the pandemic has passed.
London has no right to succeed. But it has many reasons why it might.
Strengths and Opportunities
Let us complete the SWOT table by looking at some of the Strengths and Opportunities.
- London has by far the deepest pool of capital in Europe.
- London is the largest city in Europe. It is number 1 in Schroder’s Global City Index. Access to arts, culture, restaurants, hotels and leisure facilities is excellent.
- UK corporate governance is widely respected
- English law is the jurisdiction of choice for business contracts and dispute resolution
- London has access to a range, quality and quantity of expertise unavailable to the EU cities.
- London is the second-largest financial centre in the world.
- London leads the world in business and financial services.
- London is a desirable residential destination for the world’s wealthy, with a “large pool of prime properties in central locations that will be attractive. In addition, the UK capital offer higher yields than many European cities such as Paris and Frankfurt.“
- London generates some 22% of the UK’s GDP.
- The UK benefits from a time zone between the US and Asia.
+1. The UK is home to the world’s best universities and MBA programmes.
- Europe is not everything. Since 2006, the EU27 have seen their share of global financial activity fall from 20 per cent to just 13 per cent. Asia now accounts for 40 per cent and is growing far more quickly. The UK financial services industry should focus on competing with the US and Asia rather than the EU.
- The UK’s strength in education makes it not only the place people want to come to; it also provides ambassadors for the country who speak English and have a real connection with the country.
- As our Meta-megatrends analysis makes clear, the world is becoming multi-polar. Sitting outside all three blocs – the US, China and Europe – allows the UK to engage with and be the meeting place for all of them.
- Both Google and Apple chose London as their European headquarters. Media and technology are faster-growing sectors than finance for London, developing skills and opportunities for an information age which, when combined with access to capital, and a light-touch regulatory regime, provides real opportunities for future development.
- The opportunity to develop and engage with new financial products (such as SPACs) is both greater and faster in a centre such as London, with its depth of experience, expertise and capital.
Separating from the EU may well be a mistake. But it need not be a mistake for London. That separation may force the government to introduce initiatives that make London more attractive to the rest of the world. It will force London’s businesses, and especially the financial and services firms, to adapt and change to seek other markets and other opportunities, building on the inherent strengths of the City, of London, and of the UK.
Written by Jonathan Blanchard Smith, SAMI Fellow and Director
The views expressed are those of the author(s) and not necessarily of SAMI Consulting.
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