With the threat of a Brexit growing ever closer, stark warnings of the potential impact on the City of London grow louder. Bank of England governor Mark Carney has warned of major banks leaving the city in their droves, fleeing towards the safety of EU countries. But how likely is that to happen? It appears to be a generally universal opinion that a Brexit would have a negative effect on the City, at least in the short term. London’s financial centre is the world’s largest, contributing 9.6 percent to the UK’s GDP in 2011. It is home to 250 foreign banks, most of which are based here because of the access London gives to the EU market. Without that, banks could be forced to relocate abroad. “A significant amount of financial trade currently booked in London would leave if the UK left the EU,” says Alex Wilmot-Sitwell, head of the European arm of Bank of America Merrill Lynch. “It wouldn’t happen overnight but, steadily, it would fragment throughout the EU.” Of course, it largely depends on the agreement the UK reaches with the EU as to whether the City would retain unfettered access to the single market. However, without it, Carney has warned of the consequences: “Fundamentally in its broadest terms, the question is what degree of mutual recognition would be accorded to the UK… and whether or not a mutual recognition framework could be negotiated that would as much as possible replicate the current passporting regime,” Carney said. HSBC warned in February of the possibility of moving a large part of their investment banking arm to Paris should a Brexit happen: “If the UK leaves the EU it could have a significant impact on our non-ring-fenced bank – our trading room, corporate banking and investment banking – although it would not have an impact on our holding company domicile,” he said. “In that situation a number of jobs would leave the UK.” However, some are sceptical as to whether the impact would really be so great. After all, London was a global financial centre long before Britain joined the EU in 1973, and has remained so despite not joining the single currency. It boasts an impressive skill set, the world’s most universal language, and a time zone that allows for same-day working with both Japan and the US – even without access to the EU, London is a beneficial city to base business. In reality, it is not easy to simply move your operations abroad – it would be timely and costly. According to lobby group TheCityUK the 250 foreign banks based in the UK employ almost 160,000 people; moving this number abroad, or recruiting again, would be no easy task. Arguably, the City is the greatest financial centre in Europe with one of the most welcoming tax and regulatory environments. Any post-Brexit negotiations are likely to saw in favour of the UK; as we import £68 billion more goods from Europe each year than we sell there, we are in a strong bargaining position. In the event that the public vote ‘yes’ to leaving the European Union on the 23rd June, in the short term the effects are likely to be negative. The Sterling may well drop against many other currencies, largely on the panic created by the uncertainty of the future. But after that, it could go either way – in reality, no one can be sure. With a lack of any precedent to follow, we can only hope for smooth post-vote negotiations.

Miranda Wadham on 28/04/2016