UK financial services exports have struggled to recover from the double whammy of COVID-19 and Brexit and remain at levels last seen in 2006 after adjusting for inflation, new data showed on Thursday 27 January.
Britain exported £14.5bn worth of financial services in the third quarter of last year, according to new inflation-adjusted figures from the Office for National Statistics.
Although up slightly from £14.1bn in the second quarter, which had been the lowest figures in 15 years, the data pointed to tough times for financial services exporters.
Exports of financial services to the European Union totaled £5.1 billion at current prices in the third quarter, just ahead of exports of £4.4 billion to the United States.
In 2019 – when trade in financial services with the EU was still unrestricted – quarterly exports to the EU were around £1 billion higher.
“Financial services exports to the EU are down around 10% compared to non-EU exports since 2019, but at least part of the decline is likely due to COVID-19 rather than Brexit,” Thomas Sampson, an associate professor at the London School of Economics, said of the data on Twitter.
He said data on trade in services as a whole – excluding pandemic-hit travel and tourism – suggested Britain’s deal with the EU had reduced flows over the past few years. first three quarters of 2021 overall, although mainly due to lower imports.
Financial services, which have been touted by ministers as key to Britain’s post-Brexit future, are the country’s biggest services export.
Other sectors are doing much better. Exports of ‘other business services’ – which includes consultancy, outsourcing, legal advice and architecture – had almost recovered to record highs even when controlling for inflation, at £29.2bn in the third trimester.
UK exports of financial services hit an inflation-adjusted record of £21.6 billion in the fourth quarter of 2007, shortly before the financial crisis.
The most recent spike, £17.8bn in the second quarter of 2016, came just before the vote to leave the EU.
Post-Brexit, the financial sector found it more difficult to trade with the EU, which was by far its biggest export customer.
Certain banking, insurance and other financial activities undertaken for customers in the EU that were previously carried out from London must now be carried out inside the bloc, with taxes paid locally.
Although surveys show London remains in the top two global financial centers along with New York, financial industry officials are looking to authorities to help boost the city’s global appeal, given that the financial centers of the EU such as Amsterdam present new competition to London.
“The UK should promote the competitiveness of its financial services industry beyond trade agreements, so that UK financial services exports thrive,” said Angus Canvin, director of international business at UK Finance.
“This means implementing the Government’s regulatory reform agenda, while of course maintaining high regulatory standards and a strong legal system – also essential to the success of the industry.”