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The City of London, once considered the crown jewel of Britain’s dominant services sector, has performed even worse than the rest of the economy in the years following the Brexit referendum.

Financial and insurance output has grown just 2.8% since the decision to leave the European Union in June 2016, Bloomberg analysis of . That is much slower than the 10% increase in overall gross value added, which itself reflects only anemic growth for the wider economy across nearly a decade.

The sector has also missed out on a jump in , an area where Britain has established itself as a global leader. While wider services exports have grown 30% since the second quarter of 2016, exports in financial services have edged up by less than 2%.

This week marks the fifth anniversary of the UK’s official departure from the EU. Recent polls show the decision has soured, with over half (55%) of Brits saying it was wrong and fewer than a third (30%) saying it was right, .

The latest Office for National Statistics figures suggest that financial services — which helped to power Britain’s strong growth between the 1980s and 2000s — has suffered a disproportionate hit from the UK’s exit from the trading bloc.

Listings Decline

“Given the UK specialization in financial services, this may point to evidence that the UK has lost some competitiveness – or simply access to other markets like the EU,” said Marion Amiot, European economist at S&P Global Ratings.

“Issues in terms of attractiveness as a financial center seem to come up in other statistics too,” she said. “The London Stock Exchange has seen a decline in listings over recent years, [and] many financial institutions had or chose to relocate some of their activity to the EU post-Brexit.”

Governments of both stripes have stepped up efforts in recent years to revive the City of London with a blitz of reforms, including an overhaul of listing rules and proposals to ditch restrictions on banker bonuses. The current Labour administration has also ordered City regulators to tweak rules to more aggressively pursue growth.

The City of London was rocked by the twin blows of the global financial crisis and then Brexit, fueling concern at the time that other cities in Europe would tempt business away from the UK. Fears of a mass exodus from the Square Mile post-Brexit did not come to pass. Nonetheless, the sector has underperformed during a period when the wider UK economy has also been buffeted by a series of crises, from the pandemic to surging inflation.

Boom Era

Financial services is diminishing in importance for the UK economy. At its peak in early 2008, it made up 12.4% of the economy. It had fallen to 9.2% of output by the Brexit referendum and has slipped further to 8.6%.

The sector helped to power the strong growth seen in the run-up to the financial crisis. Between 1990 and 2007, financial and insurance activity almost doubled, while the wider economy grew 50% — a period when Britain outperformed many of its developed peers.

Miles Celic, chief executive officer of Square Mile lobby group TheCityUK, remained upbeat. “As the UK economy continues to adapt to major global political, economic and technological changes we fully expect that our industry will remain a major British success story at home and abroad,” he said.

Photograph: The Canary Wharf business, financial and shopping on the bank of the River Thames beyond Tower Bridge in London, UK, on Saturday, Nov. 26, 2022. Photo credit: Chris J. Ratcliffe/Bloomberg

Topics Europe London