London is still the top European destination for international finance firms, but Paris and Frankfurt are closing the gap thanks to Brexit, according to a survey of business sentiment by the audit firm EY.
“The attractiveness of the UK financial services sector has not yet fallen,” said Omar Ali, UK financial services leader at EY. “We have to be realistic though, our study of investor sentiment is showing they are concerned about the outcome of Brexit negotiations.”
EY’s study reported 69 foreign investment projects in London during 2016, up 13% on 53 the year before. Most of the companies expanding here were from the US and China.
London continues to be the most popular destination in Europe for foreign investment in financial services – but its lead is slipping fast. In 2015, three quarters of EY’s business respondents rated the city as attractive, but this dropped to 62% last year.
Meanwhile, Paris jumped from 39% to 52% and Frankfurt went from 24% to 44%.
Foreign business confidence in London and the UK’s labour market, access to talent, social stability and the transparency of the political system have all declined in the past 12 months, EY said. A loss of access to EU markets was cited as a worry by 42% of them; 39% were alarmed by the prospect of export tariffs.
Earlier this month, the FT reported that several big US investment banks, including Morgan Stanley, Bank of America and Citigroup, are considering moving hundreds of billions of dollars’ worth of transactions out of the UK capital.
Ali said: “The UK remains a world-class place for financial services firms to do business. The talent, level of infrastructure, quality of life, plus deep capital markets and a robust regulatory and legal system are all hard to rival.
But he added: “Brexit is clearly a concern for investors and there is an increased level of reassurance needed.”
EY’s financial services sector report forms part of its wider “UK Attractiveness Survey”, released last month. That combines publicly available data on foreign direct investment with a survey of sentiment among 453 business decision-makers, undertaken between February and April.
The May report painted a troubling picture of an international business community dismayed and concerned by Brexit.
After several years of reporting strong growth and new annual records set for foreign investment in the UK economy, this year’s survey reported “a mixed year” with “every positive indicator offset by an equivalent negative development”.
Steve Varley, regional managing partner for the UK and Ireland, and Mark Gregory, chief economist for the UK and Ireland, wrote in the report’s foreword that “the UK’s continued ability to attract [foreign investment] will be under close scrutiny in the run-up to Brexit in 2019.
“Significant concerns [are] starting to emerge in the UK’s medium to long-term attractiveness. The situation is finely balanced.”
[“Source-fnlondon”]
