Impacts of Brexit.
The financial services sector of the UK has traditionally had a surplus in the balance of payments. In 2021, exports of financial services were worth £61.3 billion, while imports were worth £16.6 billion, resulting in a trade surplus of £44.7 billion. Financial services made up 20% of all UK service exports and 9% of all service imports in 2021. UK exports of financial services to the EU have fallen notably since 2018. More specifically, between 2018 and 2021, UK exports of financial services to the EU fell by 19% in cash terms, while exports of financial services to non-EU countries grew by 4%. In Q1 2022, the EU accounted for 34% of UK financial services exports and the USA accounted for 31%.
It is true that Brexit had a significant impact on the financial sector. The back then close relationship between the Eurozone-European Union and the UK has changed significantly after Brexit. The relationship between the two parties is determined by the TCA agreement. Among the rules that have been agreed upon are the following:
- Neither the UK nor EU should limit the number of the other’s firms that can operate in its market or limit the number of people they can employ;
- The other’s firms should enjoy no less favourable treatment than other national or foreign suppliers;
- Both the UK and EU agree to grant to the other’s financial service suppliers which are operating in their markets access to any payment systems operated by the State.
Reports have shown that after Brexit More than 440 financial services firms in the UK have relocated part of their business, staff, or legal entities to the EU, and over 420 of them are setting up new hubs for their EU business. Banks have moved or are moving more than £900bn in assets from the UK to the EU, and insurance firms and asset managers have transferred more than £100bn in assets and funds. From this movement of firms there were some parties that have benefited more than others. Among them are Dublin, Paris, Luxembourg, and Frankfurt with the last starting to become the new financial centre of Europe since the UK left the EU. Simultaneously, there are also many financial institutions and firms that were “obligated” to set up UK branches in order for them to operate easier in a still strong financial centre as London. Only history will tell whether London will manage to sustain its status as the dominant financial centre in Europe or a new one will overthrow the back then global dominant power.