Brexit revisited: What is the outlook for financial services four years later?

Britain left the EU after voting in favour of Brexit in a 2016 referendum – Copyright AFP/File FRED TANNEAU

At the time of the referendum, one of the key arguments presented for Brexit was the country’s chance to become less reliant on EU trade and open up trading alliances with new countries. Have these benefitted the UK?

Following COVID-19, international trade performance has been skewed in the window between Brexit taking place and now. However, between 2019 and 2022, the UK’s GDP growth was lower than the OECD, G7 and EU27 average, indicating an overall slump from an international trade perspective.

Between 2018 and the year immediately after actually leaving the EU, the UK witnessed a significant drop in financial services exports from the UK to the EU. There was an 18 percent decrease in exports of these services to the EU. Trade to non-EU countries proved an inadequate replacement, rising by just 4 percent in the same window.

The new international trade agreements may open doors to international trade with new markets with a view to negating that loss.

In July 2023, the UK joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement including countries such as Australia and New Zealand, Mexico, Chile and Vietnam. However, alongside November’s Autumn Statement, the Office for Budget Responsibility noted that the deal would add just 0.04% to the UK’s GDP after 15 years.

In November 2023, talks began with South Korea over a new and improved trade deal. Financial services are the UK’s second-largest services export to Korea, and the sector would stand to benefit hugely in the event of strong trade terms being finalised. This deal will also see significant Korean investment into the UK, with investment in project finance, green infrastructure, investment banking and securities.

Until then, however, the general consensus is that Brexit has done little to strengthen Britain’s trading position internationally, though Rishi Sunak is thought to be on the brink of a “landmark” multi-billion trade deal with India, which would represent Britain’s biggest trade alliance since leaving the European single market.

Four years on from Brexit, the results suggest that the UK financial services sector has not been impacted as strongly as might have been suggested previously. The UK, and particularly London, remains a hotspot for fintech innovation, while new opportunities for international financial services firms and dedicated policies aimed at recruiting the strongest talent suggest the future outlook is becoming brighter.

However, the question remains – would the financial services industry remain stronger had we simply not left the EU? In the years since we left the EU, the value of the pound has never fully recovered to pre-Brexit levels.

“It is difficult to look at Brexit within a vacuum…” comments Stuart Wilkie, Head of Commercial Finance at Anglo Scottish to Digital Journal, “…particularly given the seismic other events that have taken place between now and then. An unparalleled global pandemic enormously impacted the finances of every country in the world, while war in Ukraine and the subsequent inflationary crisis have made it harder for the pound’s value to recover.”

Going forward, questions remain over the efficacy of the UK’s new trade deals are yet to be seen.