Three Reasons Frankfurt will not Overtake London as the Finance Capital after BrexitBrexit uncertainty has hit London’s reputation as the world’s leading global finance centre. Political instability, the possibility of a no-deal exit, and the potential loss of financial passporting rights have all combined to give firms the jitters.
This nervousness has started to show through in attitude surveys. Only this week, the latest Duff & Phelps Global Regulatory Outlook report found that New York has knocked London off the top spot.
But global finance operates in very long cycles; seismic shifts are rare and by its nature, finance thinks and plans in terms of many decades, not years. What might seem to be an unstoppable industry realignment is often little more than a minor strategic adjustment to retain the status quo.
Frankfurt is being touted as the next global hub, set to seize the European crown and overtake London in the next few years. There’s no doubt that Frankfurt is, and will continue to be, a key finance hub. But for many international players, it will never be anything more than a London satellite.
London has the financial history and the expertise
London has been a trade centre since Roman times but the UK’s current financial rise started in the mid-1980s when the Prime Minister of the day, Margaret Thatcher, relaxed a whole raft of regulations in what became known as the Big Bang. This kicked off an explosion in financial services and helped create the heavyweight London finance sector we see today.
The 21st Century UK economy is built on financial services. Its regulatory environment and the legal system is designed to make doing business in finance easy, and perceived low corruption levels combine to make it a safe bet for big institutions.
In fact, many have argued that the UK has gone too far when it comes to rotating its economy towards services and away from manufacturing. That’s hard to dispute when, today, the UK’s financial sector is worth more than £100bn to the UK economy and accounts for over two million jobs.
This history is important because it has enabled London to put down roots that stretch globally into every financial network and hub. Generations of expert financiers have been drawn to London; institutions have built their businesses here and angled their operations with London at the centre.
Language and culture are important factors
Not only does London have the history and expertise, but it also has the language and international culture; two things that are often overlooked and are holding many banks and their employees back from mass relocation.
And they’re a significant factor. Martin Armstrong, a partner at headhunting firm Armstrong International, said recently:
“Culturally, Paris is French, Frankfurt is German but London is international. The Americans, who own this industry, want to operate in an English speaking environment. No one wants to go.”
That’s not to say that banks aren’t looking to create a new space in Europe to hedge against a no-deal and loss of passporting. But figures from January this year from Reuters show that London jobs are still being advertised with JP Morgan, Goldman Sachs, Citigroup, UBS, Credit Suisse and even Deutsche Bank amongst others all looking to fill more than 1500 new UK roles.
In fact, in January just 300 jobs had been listed for the whole of Germany and France – not the mass exodus predicted. Plus, while all eyes are on Frankfurt, other Eurozone countries are coming up on the rails: next to the UK, the fastest growing finance jobs market is not in Germany but in cities across Poland, where almost 900 roles are currently advertised.
The UK will always be a desirable place to live and work
Finance is a sector that often hides its human face. But just like every other industry, it needs to attract the very best talent to remain competitive and successful. That is proving difficult right now when it comes to tempting staff to relocate out of London, and is probably reducing take-up of positions by the next generation coming into the sector.
London is, rightly or wrongly, deemed by workers to be a more appealing place than Frankfurt to work. Younger workers from across the world are tempted by London for its cosmopolitan vibrancy, innovation culture and social scene. For those with families, commuting is easy and the UK is renowned for its top high schools, universities and business schools.
While Frankfurt might well be on the rise, and will doubtless be a competitor in the future, London is likely to stay ahead for these reasons plus one other: the UK is constantly evolving. It’s a nation of innovators and its finance sector is more agile and flexible than possibly any other.
British governments are well aware that they must keep the UK ahead in the global financial race and no matter who is in power they will know that long-term stability and success depends on the UK’s position as one of the leading global finance centres. They will do everything it takes to ensure London remains at the top.
Scott Johnson, Managing Director at Claydon Energy Partners