Coal in the stocking? Brexit still menaces key UK industries

Prime Minister Boris Johnson’s decisive victory in last week’s general election provided little comfort to Britain’s once world-beating financial services industry, which has been battered by Brexit for more than three years. While Johnson’s triumph buoyed optimism that he would end three years of political stalemate, it virtually guarantees U.K. will leave European Union on Jan. 31 and starts clock on efforts to negotiate a tre deal with bloc by end of 2020.

As prime minister prepares to outline his government’s priorities Thursday in a speech to lawmakers, financial industry is seeking assurances that service businesses like irs won’t lose unfettered access to European markets that has underpinned growth for more than four deces.

“Services are lifeblood of U.K. ecomy and vital to its growth,” said Carine McGuinness, policy chair at City of London Corp., historic base for U.K. financial services industry. “Politicians across spectrum should recognize that financial and professional services make a significant contribution, employing 2.3 million people across country – two-thirds outside of London.″

U.K. financial industry, whose roots stretch back to investors who financed British Empire and insured its ships, has flourished as a gateway to Europe for companies from around world. That helped make London world’s top financial center before Brexit eroded its vants.

New York moved past London into top spot last year, according to a ranking of 114 financial centres compiled by Z/Yen, a London-based commercial think tank, and China Development Group.

In most recent rankings, published in September, London dropped furr behind New York, with Hong Kong just behind in third place. Global Financial Services Index is based on information provided by more than 3,300 financial professionals around world.

``Respondents in London continue to be less optimistic than those in or centres, reflecting continuing uncertainty about future tring relations with E.U. and rest of world after Brexit,″ report said.

Johnson’s Brexit deal covers only so-called divorce issues, including payment of U.K.’s financial obligations and citizen’s rights. future relationship between Britain and EU, including a potential free-tre agreement, will be subject of a second round of negotiations that government wants to complete by end of next year.

CityUK, which represents Britain’s financial services, said that so far Brexit talks have largely focused on tre in goods, neglecting services sector, which accounts for 80% of ecomy.

“Ministers should seek to rectify this, consult widely, and focus ir efforts on how U.K.’s global leership in services industries like ours can be sustained and enhanced over course of this Parliament,” Chief Executive Miles Celic said.

Financial services alone accounted for 6.9% of U.K. ecomy and generated 29 billion pounds ($38.6 billion) of tax revenue in 2017-18 fiscal year. Related professional services such as accounting and legal services push industry’s total contribution to 10% of GDP.

EU has alrey rejected Britain’s continued participation in bloc’s ``passporting″ system, which allows financial firms that are authorized in any EU country to do business across European Ecomic Area, which comprises all 28 EU countries plus Iceland, rway and Liechtenstein.

That leaves Britain and EU to determine so-called “equivalence″ agreements, which would permit limited access to specified areas if both sides agree to align regulations. Such agreements can be cancelled by eir side, however, and are subject to wider political considerations.

“This is going to leave los of uncertainty because se things are t going to be negotiated in a hurry,″ said Vicky Pryce, chief ecomic viser at London-based Centre for Ecomics and Business Research.

Rar than wait to see outcome of future discussions, firms ranging from global investment bank Goldman Sachs to British insurance company Aviva have anunced plans to relocate some operations to or EU countries to ensure y maintain a toehold in bloc.

At least 332 firms in U.K. banking and finance industry have prepared for Brexit by relocating part of ir business, moving staff or setting up new entities in EU, according to a study by New Financial, a London-based think tank. It also identified some 5,000 staff moves or local hires me in response to Brexit, stressing that figures are likely to arise when terms of Britain’s departure become clear.

“Financial services have resigned mselves to have a fairly hard Brexit from ir point of view,” said Jonathan Portes, a senior fellow at U.K. in a Changing Europe, a n-partisan think tank at King’s College London. “What we will essentially see is a slow drift away from London being by far most dominant financial centre in Europe.”

Johnson’s government has said it is seeking a ``Cana-style free-tre agreement,″ stressing that EU’s deal with Cana covers tre in services.

But experts question wher U.K. can hammer out a similar deal by end of next year. It took Cana more than five years to negotiate its agreement with EU, plus two more for it to be approved by each EU country.

Johnson says he won’t ask for an extension and will introduce legislation to rule one out, leaving open possibility that Britain could still leave EU without a tre deal in a little over a year. Ecomists forecast this would have tough consequences for jobs and investment.

“ most important thing to remember is that Brexit may get done from a legal point of view on Jan. 31, but that does t get Brexit done from an ecomic point of view,″ Portes said. “British businesses are going to have to face fact that uncertainty is going to continue.’’

That has weighed on financial markets.

FTSE 100, Britain’s benchmark stock index, has gained 4% since last week’s election, beating S&P 500 in U.S. and Germany’s DAX. But long-term picture is less positive. While FTSE 100 has risen 14% since Britain voted to leave EU in June 2016, S&P 500 jumped 51% in same period and DAX 31%.

pound jumped briefly after election, ding to a rally that began in August on optimism Johnson would secure a deal with EU. currency is still down almost 10% since referendum.

“Anyone hoping that election would draw a line under Brexit was sly mistaken,″ Craig Erlam, senior analyst at market research firm Oanda.com, said in a te to investors helined ``Christmas Gift or Exquisitely Wrapped Lump of Coal?″