Brexit and Financial Services

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Prime Minister Theresa May announced recently that Article 50, which will begin the formal process of Britain’s departure from the European Union, will begin in late March 2017 with a two year schedule for completing negotiations with E.U. bureaucrats. One main concern of the Brexit referendum was the effect on domestic employment should Britain decide to end its membership with the European Union.

A number of surveys have been released regarding this issue within the past month. Consultancy group Manpower released its Employment Outlook Survey for 2016 and stated that the referendum thus far had “done little to dampen employers’ immediate hiring plans.” However, six out of nine sectors have expressed pessimism about future employment opportunities. Loss of employment could be seen occurring in the construction and finance sectors which had been considered safe areas for employment.

The issue of immigration and recruiting European talent (especially the free movement between Britain and the E.U. of workers) has also been a key issue for UK businesses that are reliant on European talent to fill critical job openings. Manpower Managing Director Mark Cahill said in a statement that the U.K. was entering: “new phase of prolonged economic uncertainty”, “This would make sure the UK remains competitive, while sending a powerful message to skilled jobseekers — Britain remains open for business.”

Financial Sector

One sector that was certain it would be affected by Brexit was Financial Services. For its part the financial website, thisismoney.co.uk, says that the exodus of corporations and staff is already underway. It quoted the executive recruitment firm DHR International as saying: ‘Brexit has acted as the catalyst for major US banks to carry out ‘radical surgery’ on UK operations, including cost cutting and shifting hiring plans from London to rival cities.’ Additional concerns were also raised by Xavier Rolet of the London Stock Exchange as he warns of a possible loss of 100,000 UK jobs if the euro currency business is moved outside of London or to other countries due to Brexit.

The report also stated that businesses were looking at a 40% cost reduction by perhaps moving operations to Warsaw, Lisbon and Dublin.

Stéphane Rambosson, managing partner of DHR International says: ‘It’s been widely speculated that US banks would shift their focus away from London post-Brexit but now this is definitely starting to happen. A number of US banks have shifted their hiring for senior positions in corporate and investment banking to locations such as Paris and Frankfurt as part of the first step in expanding their presence in mainland Europe.’

In its research, thecityuk.com states: ‘Financial and related professional services is an industry that is structurally important to the wider UK economy, supporting nearly 2.2 million jobs across the country, paying more in tax than any other sector and contributing 12% of GDP.’

The report also stated: ‘Employment is a lagging economic indicator, exhibiting significant changes only after a change in economic trends. In its latest Inflation Report released on 4 August, the Bank of England forecast that 250,000 more people would join the ranks of the unemployed in the next two years, relative to its forecast in May.’

Property investor Richard Tice, chairman of a new lobby group that urges the government to make a clean break with the EU, told Reuters the report was exaggerated and other European capitals lacked the infrastructure or skills to take financial services business from Britain. The report is “designed to scare people with special pleading. However, it lacks credibility,” he said. “Brexit is a huge opportunity for the City.”

Pro-Brexit supporters say the City could benefit from lower regulation and by refocusing on faster-growing economies in Asia.

No Brexit Effect?

With so many dire warnings presented before the vote that Brexit would be a disaster for current and future employment, other reports show a different post-Brexit picture at least for now.

The Office of National Statistics leading into September says that the unemployment rate was at 4.9% versus 5.5% a year ago. Record rates of three quarters of the people who are able to work are employed.

While Britain’s labour rate has remained relatively resilient since the referendum in June for the near term other market analysts see the future less than encouraging.

In an interview with the BBC, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, stated: “When you scratch beneath the surface, today’s labour market figures are not as robust as they first appear.”

The increase number of people working “remains supported by surging self-employment”, Mr. Tombs said.

“The strong growth also reflected a shift towards part-time working; total weekly hours rose by just 0.3% between April and July,”.

By Kevin Murphy: www.kevinmurphy.london

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