by Saif Ullah, Researcher
With London regarded as the world’s leading financial centre, the uncertainty caused by the UK’s recent decision to leave the EU could have major implications on whether the capital can maintain its competitive position in financial services. Some major multinationals, such as Prudential, have already begun to discuss plans to move operations and staff to other centres in Europe in order to maintain access to the Single Market.
The Research team here in the City of London has been looking at the UK’s trade with EU markets to help understand how Brexit has the potential to affect financial services..
Goods vs services - EU
In terms of volume, the UK exports more goods than it does services. Within the EU Germany is by far the UK’s largest trade partner for goods, exporting £60.8bn to the UK in 2014. Other major goods exporters to the UK are the Netherlands (£31.7bn) and France (£25bn).
Approximately 44% of the UK’s total exports both in goods and services went to the EU in 2014 (£229bn out of £515bn), with goods exports to the EU accounting for £148bn (65%) of this amount. However, the UK operates a significant trade deficit with the EU in terms of goods (£79bn), meaning that the UK imports more goods from the EU than it sells.
Source: ONS, Pink Book 2015
In contrast, the UK operates a surplus in its services trade with the EU, meaning that the UK sells more than it buys. Total services exports to the EU were worth £81.3bn in 2014 while imports were worth £64.2bn, leaving a trade surplus of just over £17bn. Germany (£12.1bn), France (£11.7bn) and the Netherlands (£11bn) are the primary markets for UK services exports.
Source: ONS, Pink Book 2015
Importance of financial services
Financial services (FS) and insurance make up the largest proportion of the UK’s services trade, accounting for £22.7bn (26%) of services exports to the EU. Once again, it is the larger economies in the EU that are the dominant markets for UK financial services exports, with France (£4.7bn), Netherlands (£3.5bn) and Germany (£3.3bn) being the biggest recipients.
Wider markets
The UK also has a number of important trading partners globally. The US imports £21.6bn worth of FS and insurance services from the UK, nearly the same as the total amount of financial services exports to the EU. Other major recipients of UK FS and insurance exports include Japan (£3bn) and Australia (£1.2bn).
Taiwan imported £176m of FS and insurance services from the UK in 2014, £18m more than the previous year, while there was also growth in trade with Japan (up nearly £200m to £3bn) and Indian markets (up £1m to £218m). Although there was a general decline in FS and insurance exports from the UK in 2014, economies such as South Africa (£436m), Singapore (£515m), Hong Kong (£593m) and Saudi Arabia (£342m) have remained major trading partners.
UK’s main FS and insurance export markets outside EU
|
Countries |
Trade in FS and Insurance, 2014 (£m) |
|
USA |
21627 |
|
Japan |
2992 |
|
Switzerland |
1913 |
|
Australia |
1151 |
|
Russia |
1027 |
|
Canada |
850 |
|
Hong Kong |
593 |
|
Singapore |
515 |
|
South Africa |
436 |
|
Saudi Arabia |
342 |
Source: ONS, Pink Book 2015
Life after Brexit
While EU member states in unison remain the primary market for the UK’s FS and insurance exports, receiving nearly a third (33%) of the total amount exported, the UK has developed strong and growing trade relationships with many countries outside of the EU. The strength of the financial and insurance services cluster in London, the availability of highly skilled staff and the wealth of professional, legal and tech services all underpin the capital’s reputation as a world leading financial centre. If we can maintain these strengths, there is good reason to believe that the UK’s financial services industry can continue to prosper outside of the EU.
The City of London Corporation, and in particular the Economic Development Office will be significantly increasing our investment to support financial services across the UK, reinforcing our strategy and delivery in building future products and services in financial services; promoting exports and investment; strengthening and influencing the wider regulatory framework; and enhancing our partnerships with business and government.