London’s Fate In A Post Brexit And Post COVID World
London continues to rival New York City to hold the status as the world’s premier financial hub but now many question if the United Kingdom’s capital will be able to keep pace in a post-Brexit and post COVID-19 world. The iconic and historic city may have succeeded in convincing banks and corporate Foreign Exchange firms to keep jobs in the city, but the global pandemic certainly brought an end to that battle.
London Loses Ground To New York
The United Kingdom voted in 2016 to leave the European Union and Boris Johnson’s 2019 U.K. general election victory was seen as a follow-up referendum on the original vote. While the public exercised their democratic voice and voted for what they believed to be in their best interest, the global banking community felt otherwise.
The U.S. consultancy firm Duff & Phelps released a survey of 183 financial services professionals across 15 countries between March and April of 2019. The findings were clear: London was relegated back to the world’s second most important economic hub after overtaking New York City in 2018.
The United Kingdom's separation from the European Union became official in early 2020 and a transitory period was set for the end of the year.
Among those surveyed, 21% of experts predicted London would be the world’s most important economic hub. Perhaps the most telling sign of Brexit-induced headwinds, only 44% of professionals living in the U.K. said London will return to number one within five years.
The Job Exodus That Never Happened
The Bank of England estimated in 2018 that around 5,000 financial services jobs will be lost in London as companies divert jobs elsewhere so they can remain physically within the European Union.
But fast forward to the end of the decade, and by some measures, the job losses weren’t as bad as initially expected.
For example, banks moved just 1,000 posts from London to Frankfurt, Paris, and other European financial hubs since the 2016 election. In fact, just weeks before the official separation, there were conflicting signs at best that a mass exodus from London never occurred.
Quite the opposite could be true. An EY report that tracks 222 firms’ public comments on actions on Brexit confirmed financial services companies “have so far transferred fewer staff and assets to the continent than expected.” Goldman Sachs, the Wall Street global behemoth bank, even invested £1 billion for a new London headquarters set to open in 2019 and house around 6,000 workers.
London even extended its lead in foreign exchange and interest rate derivatives tradings. Put in perspective, daily foreign exchange trading volumes passing through London rose to a record £2.28 trillion ($2.88 trillion) in October 2019. By comparison, the total value of shares that trade hands on the New York Stock exchange on a daily basis rarely exceeds £0.55 trillion ($0.7 trillion.)
The city of London and the entire United Kingdom even ended 2019 near historic highs. Unemployment ended 2019 close to 3.8%, the lowest level since the mid-1970s while the number of people working across all of the U.K. was a record high of 32.8 million.
Years of economists and experts predicting doom and gloom for London in a post-Brexit reality have proven false.
Renewed calls for job losses in 2020 and beyond were not taken as seriously as before given a poor track record. By many indications at the time, an amicable long-term trade agreement was expected to be reached prior to the end of the transition period.
COVID Impacts London Job Market
The city of London recorded its first confirmed case of COVID-19 on Feb. 12 after a woman who returned from China tested positive. Initial expectations called for the disease to remain isolated or show up in small numbers but this was not the case. By July, the city lost more than 6,000 people as tens of thousands of people contracted the disease.
The economic impact on London was not unique in any sense. Much like every other global financial hub, jobs losses were inevitable. As one would expect, London suffered from the highest unemployment rate of 7.6% in June based on the number of people claiming unemployment benefits.
How bad were these numbers? The U.K. not only ranks among the worst among advanced nations, but it is on track for its worst economic crash in more than three centuries. The more than 75,000 job cuts from major companies alone were expected to merely mark the beginning of a rough chapter in the nation’s storied history.
The Organization for Economic Cooperation and Development modeled the U.K. economy to shrink by 11.5% and is based on two assumptions -- each of which seem questionable in mid-2020. First, the Johnson government needs to secure a basic free trade agreement with the European Union for 2021 and beyond. Second, the entire country needs to avoid a second wave of COVID-19 infections.
How To Prepare For A Job Loss
London will likely remain the most impacted region based on the large number of financial services companies and other high-paying jobs that are dependent on a healthy economy. Naturally, anyone who is currently employed should have a plan in place to save as much money as possible, even though government programs are available to help limit the financial windfall. For many, this may seem like an unlikely event but the economic realities of a global pandemic dictate anyone and everyone’s jobs are at risk.
Of course, no government program can last forever and it will be up to individuals to take care of themselves. But there are some solutions that could offer financial relief.
There are many online platforms that recruit freelance workers and this could serve as a temporary plan to earn an additional salary during weeks or months of hardships. This could help pay the bills or even bring in enough money to treat yourself to a special takeaway meal or partake in a hobby that would have otherwise been frivolous.
Conclusion: Prepare For The Worst, Hope For The Best
This time around, predictions of COVID-related doom and gloom are more likely to play out than Brexit-related doom and gloom predictions. Few if any actions other than a vaccine and/or a confirmed treatment can justify the job market remaining stable.
There is some encouraging hope on the vaccine front. Cambridge-based AstraZeneca said in July 2020 it could have a million diseases ready for September. Other American and international companies are working on a vaccine and many experts are hopeful at least one candidate will be approved for use in 2020.