Brexit & UK Financial Services

The impact of Brexit on the UK Financial Services Industry

Dr. Maria Chetcuti Cauchi | 27 Sep 2016

Brexit

The following is a summary of a report by the London School of Economics' Centre for Economic Performance, analysing the effects of Brexit on Foreign Investment into the UK.  Particular focus is placed on the potential decline of the UK as a leading financial centre as a result of its loss of access to the Single Market for financial serivces.

UK FDI Facts

  • UK’s FDI stock at >£1 trillion.
  • ½ UK FDI comes from EU MSs
  • UK owes est. 28% FDI growth to UK’s access to the EU Single Market.
  • Positive effect of EU on UK FDI 14% - 38%

Conclusions on Brexit Impact on FDI

  • Swiss-style Trade Deal (EFTA) won’t reduce Brexit’s negative effects.
  • Brexit to reduce UK FDI by 22%  in next 10 yrs.
  • Resulting in a decline in real income of 3.4% (£2,200 of GDP per household)
  • Estimates of static losses due to lower trade: 1.3% - 2.6%.

Brexit & the UK's Car Industry

  • Production to fall by 12% (181K cars), Prices rise 2.5%.
  • A good trade deal, tarrifs at zero still sees a fall in production of 36K cars.

Brexit Impact on Financial Services FDI

Some facts on the UK’s financial services industry:

  • Biggest recipient of FDI @ 45%.
  • 8% of UK GDP, 12% of tax revenue
  • Based on passporting rights within the Single Market.
  • This passporting and access to the Single European Market will be lost.
  • Brexit to cause reduction in activity.
  • Loss of right to challenge EU regulations at ECJ.

The Role of FDI in Economic Prosperity

  • FDI raises national productivity, including output and wages.
  • Multinationals bring advanced technological expertise and managerial know-how.
  • Competition drives stimulates improvement.

Source: Centre for Economic Performance, London School of Economics, CEP Brexit Analysis No. 3.


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