Five years ago, the UK left the European Union. The liberation proclaimed by Brexit supporters has failed to materialise, and most Brits now regret leaving the EU in the first place. The new Labour government in London is trying to improve relations with its former largest trading partner. However, nobody on the island believes that it will return to the EU (soon). Post Brexit, the British financial industry continues to lose weight.
How time flies! On the 31st of January, it will be five years since the UK left the European Union (Brexit). The actual separation from the EU took place after a transition period the following year. However, the liberation that Brexit supporters proclaimed after the narrow referendum in June 2016 (52% voted in favour of leaving, 48% against) has yet to materialise.
This is because Brexit did not result in a sovereign trading nation (“free buccaneering”) that can freely choose its partners around the globe without being held back by paralysing EU regulations. Instead, in addition to higher prices on imported products, there is more bureaucracy in the movement of goods and checks on people travelling to and from the continent.
Six out of ten Brits think Brexit was a mistake
Even the supposedly only positive aspect of Brexit – that the British received the COVID vaccine de facto earlier than the continent because the UK was no longer subject to the joint European vaccine procurement programme – has been refuted.
To make matters worse – especially for many English pensioners who are flirting with a retirement in Benidorm – the Spanish government has just announced that in the future it will levy a 100 per cent tax on properties bought by residents from non-EU countries.
No wonder that most Britons regret leaving the EU: in a survey conducted by the opinion research institute YouGov last spring, six out of ten citizens of the United Kingdom (UK) said that Brexit was the wrong decision.
Even the new leader of the opposition in British parliament, Kemi Badenoch, whose Tory party pushed for Brexit (and wore out two prime ministers in the process), recently had to admit: Leaving the EU without having a growth plan was probably not such a good idea.
Starmer wants to improve relationships
The current Labour government under Prime Minister Sir Keir Starmer, which has been in office since last summer, set about improving relations with its former largest trading partner as soon as it took office.
Starmer’s second trip (the first was reserved for the NATO summit in Washington) brought him to Berlin, where the football fan watched the European Championship final; he then travelled to Paris to see President Manuel Macron and the opening of the Olympic Games, back to Berlin to see German Chancellor Olaf Scholz, followed by stops in Paris, Dublin and Brussels.
There is a lot of catching up to do in British-Continental European relations under Starmer’s leadership. However, London’s goodwill must be followed by action. Despite all the Prime Minister’s declarations that he wants to re-establish a good working relationship after years of hostility and isolation: The EU first wants to see that the UK correctly implements the previous, rather thin agreement on the exchange of goods.
Nobody believes in a return to the EU
And here the problems start already. According to a recently published forecast by the Boston Consulting Group, British trade in goods is only expected to grow by an average of only 0.7 per cent per year in the decade from 2023. It will therefore be far below the global average. According to the management consultants, this is due to friction with the EU following Brexit and the tariffs that are expected under the upcoming administration of US President Donald Trump.
There have been signs these days of at least some relief, if not anything close to a replacement for the free trade agreement within the EU: EU Trade Commissioner Maros Sefcovic said in a BBC interview that the EU is open to talks about the UK joining the so-called “Pan-Euro-Mediterranean Agreement” (PEM). This programme was agreed in 2012 between the EU and territories and countries from the Faroe Islands to Tunisia. It helps to expand the supply chain that companies can use for their trade between the EU and other members.
Whether it’s food controls, defence policy, the recognition of professional qualifications or special visas for young people and artists – the list of pressing issues on which the new British government and the continent should work together is getting longer and longer. Despite all this, no one on the island believes in a (speedy) return to the EU.
Financial industry loses business and employees to the continent
Meanwhile, the British financial industry continues to lose ground post-Brexit.
According to the latest report by lobby organisation TheCityUK, the UK remained the world’s largest net exporter of financial services in 2023. But the competition is not sleeping: according to calculations by Reuters news service, based on data from the International Monetary Fund, the Republic of Ireland, France and Germany together exported more financial services (in billions of USD) worldwide than the UK for the first time at the end of 2022.
This may also be because London’s relevance as an international stock exchange centre has waned considerably: Last autumn, the Bloomberg news agency calculated that the stock exchange in the capital now ranks behind countries such as Oman, Malaysia and Luxembourg in terms of initial public offerings (IPOs).
At the same time, more companies are turning their backs on the UK stock market, whether due to takeovers or so-called “de-listing” from the stock exchange, for example by private equity firms. This is particularly affecting the smaller company’s segment. If the pace of this “de-equitisation” continues, Bloomberg quotes a market expert, “then the last company will leave the FTSE Smallcap in 2028“.
The ongoing relocation of jobs in the banking sector in particular is a clear sign of change. The last “mayor” of the City of London, Michael Mainelli, estimates that Brexit has cost London’s financial centre 40,000 jobs – significantly more than previously assumed.
The British financial supervisory authorities, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority, are probably also working on proposals to relax the relatively strict bonus rules for bankers. However, it is not helpful in this context that a non-partisan committee certified the FCA in November as being “incompetent at best, but dishonest at worst” in terms of consumer protection in the UK.
