Issue of the week: the City and Brexit
Brexit has been dubbed Big Bang II for the City, but securing a viable deal with the EU will be a struggle
“There is no terror in the bang, only in the anticipation of it,” observed Alfred Hitchcock. It’s starting to look like the master of suspense’s dictum might apply to the Brexit vote, said The Observer. Little more than two months on, a spate of industry and consumer surveys is signalling that the UK economy appears to have recovered its poise better than many analysts had anticipated. “These benign economic data are helpful” for PM Theresa May, said James Blitz in the FT. “If the economy were showing clear signs of strain”, she “would be under pressure to settle business nerves by trying to define what Britain’s post-Brexit future should be”. Even so, the mood in the City has nonetheless become increasingly fretful over the summer.
That much is apparent at Lloyd’s of London, said Marcus Leroux in The Times. The insurance market’s chairman, John Nelson, has threatened to move the business out of the City, after more than three centuries, unless a clear direction of travel is established. Nelson’s warning that Lloyd’s may be forced to head “onshore” into the EU has further stoked anxiety about “passporting rights”, which currently allow Uk-based banks and insurers to do business anywhere in the EU without having to meet local regulations, hold capital or incorporate locally. If these are scrapped, or severely restricted, the Government will need to hammer out a new arrangement – which is likely to be highly problematic. Last week, Philipp Hildebrand, a former head of the Swiss central bank, warned that a “Swiss-style deal” with the EU would be no panacea. Despite negotiating for ten years, Switzerland still has no financial services agreement, he noted, warning that leaving the EU would spell an end to London’s role as Europe’s financial hub. A report last week forecast that around 20%, or £9bn, of the City’s capital markets and investment banking business could be at risk if a Brexit deal limits access to the single market.
Thirty years ago, “Big Bang”, the deregulation of financial markets, paved the way for London to become Europe’s financial centre, said Harriet Agnew and Patrick Jenkins in the FT. “Today the City is hovering on the brink of Big Bang II.” Some view that as an opportunity to deregulate and reposition the City as an offshore centre – “a Singapore of Europe”. But any return to light-touch regulation carries considerable risks and, for the moment, “negativity” seems to be the dominant emotion in the City. The push to communicate the finance industry’s Brexit priorities to policymakers is being led by a task force of grandees, chaired by Baroness Shriti Vadera. They have their work cut out.