The Italian job: Milan hoping to clear up after Brexit
By Lucy McNulty
6 January 2017
A group of Italian regulatory experts and entrepreneurs is promoting Milan as a eurozone hub for financial services, as it looks to step into the void created by the UK’s departure from the EU.
Select Milano, an independent, non-government organisation, is looking to pick up business that London could lose for regulatory reasons after Brexit. In its sights is the City’s lucrative clearing business, which processes around $570 billion of euro-denominated derivatives transactions daily.
Frankfurt and Paris will also be keen to compete for any business that could be up for grabs. Milan, Italy’s economic capital, is mounting a charm offensive, touting its established ties to the City – such as the London Stock Exchange Group’s ownership of the Milan stock exchange, Borsa Italiana.
Select Milano has been trying to build “a permanent bridge” between London and Milan since 2013, when then-British Prime Minister David Cameron promised to hold a referendum on the UK’s membership of the EU.
Bepi Pezzulli, a lawyer, is chairman of Select Milano. He previously managed treasury operations at the European Bank for Reconstruction and Development, and was formerly head of legal and compliance for investment manager BlackRock in Italy, Cyprus and Greece.
Pezzulli met with FN in London in December to discuss the group’s plans.
Financial News: Why did you launch this initiative?
Pezzulli: We set up Select Milano in 2013, when the [UK] prime minister announced he was calling a referendum.
We thought that once Brexit hits there [would] be an operation to steal business from the City, and Paris and Frankfurt would [lead that]. But breaking the economic unity of a City cluster isn’t good.
Rather than breaking the City cluster, we thought we should expand its perimeter to include Milan. [My] mission in life is to anglicise Milan. I think Italy has got an untapped potential in developing a better financial services industry, [and that] can help the country go back to its former glory.
So how do you plan to anglicise Milan?
Our market infrastructure is already owned by the London Stock Exchange Group. But we’re also working to ensure Milan’s non-domiciled regime is equivalent to that in effect in Britain, so if you’re ultra-high net worth individuals you can ‘opt in’ a flat tax of €100,000 for 15 years.
We have approached the European Court of Arbitration to allow disputes to be governed by English law.
There’s a 50% tax break, too, that was approved in Italy’s 2017 financial services bill on December 7, so multinational executives from top banks relocating to Milan will get 50% of their salary tax free for five years. [After five years, the top tax rate is 43.6%.] The Tobin [or financial transaction] tax will lapse on the 31st December, 2016. And we’re working on reforming the capital gains tax to align it with England. [We’re looking to replicate] a small square mile right in the eurozone.
Who do you hope will benefit?
We’re trying to offer solutions to the City of London rather than to individual financial institutions. [We’re] targeting the clearing market because, with Brexit, this market will flow back into the eurozone. That’s going to be expensive and complex. But I think no more than 11,000 jobs will be lost as a result.
We think some of those jobs could transfer [to Milan], while some jobs will be just created locally.
On December 4, Italy voted to reject constitutional reform as part of a referendum proposed by its then-Prime Minister, Matteo Renzi. How will this affect institutions’ willingness to buy-in to Select Milano? Mature democracies come with constitutional steps. The same applies to England. It’s democracy. Markets know how to deal with it.
I’m [also] not sure how the constitutional referendum is relevant to the financial stability. So far, no Italian bank has gone bankrupt. There’s a bit of drama surrounding [Banca Monte dei Paschi di Siena], but it doesn’t really impose a threat to financial stability. I would be way more worried about the financial health of the German banks, nowadays… [By comparison,] Italy is in business.
What are the next steps?
Clearly, Brexit is a wake-up call and reforms are needed. I also don’t think that Brexit is going to be the catastrophe [for the UK] that many pundits foresee, because it may be also an opportunity for very pragmatic economic policies. We are competing against Paris and Frankfurt.
Paris has got a very high tax rate and its labour legislation is a nightmare. Frankfurt doesn’t really have an infrastructure, no international schools, no universities, no housing stock. [It is also] a real threat to the dominance of the City of London. Milan doesn’t threaten the City of London. It’s the second-largest industrial [city] in Europe, already clears €10 billion daily, has six universities, housing stock, industrial tissue, research and development, so the whole ecosystem is there.
The new government is business-friendly, is being well received by the markets [and] … the government backing of Milan’s global ambition continues, and [this initiative] is fully funded with €1.5 billion. If conditions allow, we’ll do a roadshow in London to ensure the City knows that the doors of the country are open.
What do you make of LSE CEO Xavier Rolet’s comments that New York would be the natural alternative to London for euro clearing, due to economies of scale and savings derived from clearing many currencies in one place?
If New York is such a logical location, why hasn’t it emerged as such before Brexit? The real driver isn’t economies of scale, but whether it is politically acceptable that such a strategic market be located out of the eurozone. We simply don’t believe that is likely to happen as Europe should regulate its own market infrastructure.
What do you think of the UK’s House of Lords’ view that moving euro-denominated clearing to the eurozone presents big risks to both the UK and EU economies?
It is entirely sensible that the right result would be clearing staying in London. But we don’t believe that this will be allowed, as the [European Central Bank] needs to be in control of systemic risk within the eurozone. Given, therefore, clearing will leave, we believe that Select Milano’s approach – to use the LSE’s existing clearing infrastructure and ‘place’ the business in Milan – is both politically convenient and economically logical. The worst outcome for London is for clearing to move to a potential genuine competitor – Frankfurt.
Ventimila banchieri pronti a trasferirsi da Londra a Parigi entro l’estate
3 January 2017
Summary from Italian:
- Article discussing Paris’ efforts to attract post-Brexit business.
- Europlace, the French lobbying group dedicated to attracting post-Brexit business to France, estimates that 20,000 financial workers could be preparing to move to Paris from London.
- Paris is also potentially seeking a stake in the swaps market, though French financial regulation/labour laws are listed as deterrents.
- Select Milano’s efforts to bring financial services (and specifically Euro clearing) to Milan are also briefly mentioned. It is noted that SM’s lobbying has been ongoing since June.
Summary from Italian:
- The EU Commission has announced that regulatory changes are in the works which will likely cause the London Euro clearing market to be relocated elsewhere in the EU as the result of new geographic limits on the location of the liquidation phase and settlement of Euro-based transactions.
- Despite forecasts by many that the market would move to New York instead of the EU, this is unlikely given impending changes to the Dodd-Frank Act in the US whose removal will likely result in US-based swaps not meeting EU legal requirements.
- The threat of substantial deregulation and aggressive tax competition by the incoming Trump administration in the US will make it even more important for the EU to have its own clearing market.
- It is in the UK’s national interest to resist the transfer of the Euro clearing market and instead make it a negotiating point with the EU in upcoming discussions; it should help to influence and coordinate the outcome of its transfer. Milan is the natural choice for this.
Corriere della Sera
2 January 2017
Summary from Italian:
- Brief article detailing an interview with Filippo Barberis of the Milan City Council wherein he discusses the Council’s efforts to internationalise and bring greater autonomy to the city through a current draft resolution.
- He asserted that the resolution seeks to promote the international position of Milan with respect to post-Brexit business flows, and then to work on becoming a good influence on European policies.
Milan and Brexit:
Brexit threatens 10 percent of London financial jobs: lobby group
By Huw Jones
21 December 2016
Up to 10 percent of jobs in London’s financial district may be lost if Britain fails to secure adequate access to European Union markets after Brexit, a City of London official said on Wednesday.
Bankers first called for full access after June’s vote to leave the European Union but such hopes have now faded, leaving the sector to call for a transitional deal to ensure a smooth switch to Britain’s new trading terms with the bloc.
Jeremy Browne, the City of London corporation’s special envoy for Europe, said about a tenth of jobs in the “Square Mile” financial district depend on the banks and other financial firms there having full access to the EU single market.
“We shouldn’t assume that all those will go en masse,” Browne told a briefing for the foreign press.
Some 164,000 people were employed in financial services in the City of London in 2015, according to the corporation’s website. Browne’s comment suggest that 16,400 jobs are at risk, lower than other estimates that lobby groups have put forward.
“Once you start pulling bits out, the overall organism could be affected in unpredictable ways,” Browne said.
Browne, a former Liberal Democrat lawmaker, has visited all EU states at least once this year to meet politicians, central bankers, businesses and regulators to spell out how an acrimonious Brexit would harm both sides.
Some people in Brussels and other European centers talk as if London’s financial district was entirely dependent on their benevolence, Browne said.
“I am not saying the EU is not significant, but there is a danger of them overstating their importance to the success of London, and therefore overplaying their hand in the negotiation,” Browne said.
London, as the only region in England that voted in June’s referendum to stay in the EU, must also realize that some people don’t like the capital’s international outlook and raw capitalism, Browne said.
Britain is set to begin formal divorce talks with Brussels by the end of March. Paris, Frankfurt, Dublin, Milan, Amsterdam and Madrid are already vying to attract financial firms from London.
“One of the problems the French have, is that it’s quite hard to make a pitch saying we want to be the home of financial services when you have spent 20 years making a virtue of being rhetorically hostile to financial services,” Browne said.
Brexit, Milano snobbata come alternativa a Londra
Wall Street Italia
By Daniele Chicca
21 December 2016
Summary from Italian:
- Global Chairman of KPMG, John Viehmeyer, whose firm represents major global banks like Citigroup and Deutsche Bank, asserted that many of the world’s top financial institutions with operations in London are securing contingency plans for relocating post-Brexit.
- He mentions that places like Frankfurt, Amsterdam and Paris are on the top of these banks’ lists for relocation.
- The author notes that Milan is currently being snubbed in this conversation by the big banks, while places like Dublin and Madrid are being considered in addition to the aforementioned hubs.
Europe and Brexit:
Brexit: Paris could lure 20,000 finance jobs from Britain with moves starting within weeks
By Gavin Finch and John Detixhe
3 January 2017
Paris could lure as many as 20,000 workers from Britain’s finance industry with the exodus potentially starting within weeks as the UK begins its withdrawal from the European Union, according to Europlace, the French capital’s lobby group.
Paris will make its case to London-based executives in a series of February meetings as it competes for talent with rival cities such as Frankfurt. Europlace’s marketing materials show it will extol how Paris already employs more than 180,000 financiers, is home to the region’s biggest bond market and boasts the second-largest pool of asset managers.
The continental race to take advantage of Brexit is heating up as Prime Minister Theresa May plans to trigger the start of negotiations by the end of March. Global bank chiefs have warned Ms May that they will soon start shifting operations and jobs from the UK to elsewhere in the EU unless she can protect their easy access to its market.
“We feel decisions will be taken in the first semester of the new year,” Arnaud de Bresson, Europlace’s managing director, said in an interview in London. “We see institutions are accelerating their process of thinking.”
With time at a premium, bankers say they want to establish new or expanded offices in the EU before the UK leaves, which is currently set for some time in 2019. Ms May says she wants to strike the best possible deal for banks, yet hasn’t detailed what she will seek and also declines to fully endorse the transitional phase industry wants to smooth the departure.
HSBC already said in the run-up to last year’s referendum that it planned to move as many as 1,000 employees to Paris from London if voters backed Brexit, while Citigroup is now considering relocating some of its London-based equity and interest-rate derivatives traders to Frankfurt. TheCityUK lobby group warns that almost 70,000 jobs are up for grabs.
Europlace will argue Paris is better placed than other aspirants for London’s crown. It touts the city as the top hub in continental Europe for interest-rate swaps trading with some $141bn (£115bn) of the derivatives changing hands in France every day. That compares with $1.18 trillion (£964bn) in the UK.
It will also promote itself as a city of requisite skills, contrasted with Frankfurt employing fewer than 100,000 people in finance and Dublin just 30,000. Another asset in its eyes is that French corporations are typically based in Paris, whereas German ones are sprayed around their country.
Although it hosts some of Europe’s biggest banks, including Societe Generale and BNP Paribas, France has nevertheless long lagged behind the UK and Germany as an international hub for banking.
The country is perceived as hostile to financial companies and ranks 29th in the Global Financial Centres Index, only one spot above Casablanca. Even its stock exchange, Euronext NV, is threatened by Deutsche Boerse AG’s planned takeover of London Stock Exchange Group, which would create Europe’s dominant market operator.
France’s tight labour laws have also put off bankers who value longer work weeks and an employment regime that allows easy hiring and firing. De Bresson said Europlace is pushing lawmakers to relax such curbs.
By Jonathan Ford
18 December 2016
Much of the campaign unleashed by the City of London over Brexit has focused on the possible costs to Britain and itself of the UK’s departure from the EU. Precious little has addressed the wider costs to Europe of breaking up the continent’s financial hub.
Prominent City voices have been quick to issue stark warnings about the mass job losses in finance that might be expected should Britain leave the single market without a deal to preserve existing “passporting” arrangements. The Square Mile’s lobbying clearing house, TheCityUK, has talked of a “hard Brexit” costing up to 50 per cent of EU related revenue, with concomitant falls in the tax take.
But the biggest risk of all is arguably not to the narrow fortunes of a few City-based financial businesses, even if resulting changes force cuts in dividends they pass on to investors. It is the cost that post-Brexit policies may load on to consumers and businesses in the form of more expensive financial services. That affects not just banks and Britons, but savers and businesses across the bloc.
Some frictional costs may, of course, be inevitable, as new restrictions are placed on what business can be transacted cross-border. The worry is that this process will not be minimised. Out of some desire to punish Britain, or perhaps a hope that their own financial centres may benefit from fragmentation, the EU and its member states might pursue measures that serve little purpose other than to carve business out of the UK, even at a cost to the wider European economy.
There is a strong flavour of this urge in the EU’s apparent desire to reopen the idea of imposing territorial restrictions that would force the clearing of some euro-denominated securities to take place in the eurozone — an idea that Britain has long opposed and went to the European court successfully to stop a few years ago.
Such a move would, of course, directly and negatively affect the UK, as City-based institutions clear roughly three-quarters of the derivatives denominated in the euro.
But it is hard to see many benefits for the EU, or the wider European economy, were it to be imposed.
Applying a location policy would do little to achieve its ostensible purpose, which is to ensure the systemic resilience of Europe’s clearing infrastructure. Meanwhile, repatriation would raise costs for banks (and, ultimately, their customers) by fragmenting liquidity and making it harder to pool multicurrency swaps in one clearing pool as presently happens in London. The industry has estimated that these changes could force participants to put up an additional €77bn in margin just to back the same volume of trades.
There would not moreover be much of a pay-off for Europe’s aspiring financial centres in clearing trade. Some business might be transferred to the eurozone, shunted there mainly by EU banks, which, alone among the world’s financial institutions, the ECB could force to clear within its jurisdiction. But the point of the whole exercise would principally be political. It would — to employ the words of French president François Hollande — provide “an example to those who would seek the end of Europe”.
True, there is not an easy way to paper over these political cracks. The EU has never been wholly comfortable at the idea of Europe’s principal financial centre being located in a non-eurozone country, and its unease was only partially mollified by the City’s acceptance of ever more European oversight and rules. It is likely to be elevated to more neuralgic levels by Britain’s disruptive departure from the EU bloc. A co-operative deal may not be possible. Meanwhile, one that gave Brussels significant influence over a post-Brexit City would simply raise a host of old problems, such as whether the eurozone would gang together and impose unacceptable rules.
The City must understand that it cannot simply direct all its efforts in one direction.
Pointing out the negative consequences of Brexit to the UK government is only part of the picture. It must also seek to make common cause with those financial institutions and consumers of financial services in the EU and beyond who do not wish to see unnecessary costs and charges loaded on their shoulders as part of this process.
Brexit is not some zero sum exercise, but one that could have an effect akin to dropping a hefty drag anchor from the already labouring vessel that is the European economy.
Until the financial sector widens its analysis and starts to quantify these losses, its case for a post-Brexit settlement is only partially made.
By Jason Beattie
25 December 2016
Ireland has said it has received more than 100 inquiries from major firms looking to move from the UK because of Brexit .
Martin Shanahan, the chief executive of the Industrial Development Agency (IDA), said the bulk of the interest came from banks and financial institutions based in the City of London.
He told the Guardian newspaper that Dublin was looking to capitalise on Brexit by wooing firms with its low corporation tax rate and status as the only English speaking country in the EU after the UK leaves the trading bloc.
Theresa May has been warned of an exodus of major financial firms from London if she cannot guarantee “passporting rights” as part of our EU negotiations.
Passporting rights allow banks to sell financial products and trade across the EU under a single set of regulations.
A recent report by accountants PwC said up to 100,000 jobs in the UK financial services sector could be lost if the UK cannot strike a deal on passporting.
Mr Shanahan said Ireland’s 12.5% corporation tax rate and its common legal system with England made it an “attractive” base for companies looking to move their HQ after Brexit .
He said: “We have seen a huge increase in the amount of inquiries and activities across the globe.
“It’s not just our office in London, or our office in Dublin; we are receiving inquiries in Asia, in the US, in New York in particular.
“The figure that we have used to date is over 100 related inquiries.”
“For the financial services sector it is the fact that they need to have access to the European market and they need a jurisdiction in which they can do that.
“Ireland is extremely attractive because we are English speaking, have a common law system, there is the close proximity to the UK.”
By Tim Worstall
26 December 2016
So we are told at least, the agency in Ireland that attempts to attract inward investment is telling us that financial firms are looking at the UK post-Brexit and deciding that they’d like to explore relocation to Ireland. However, there’s a little less to this than there might seem. For quite clearly we are not going to have major financial institutions plonking themselves down in Dublin. The city isn’t large enough to encompass The City if you like. In fact, Ireland itself isn’t. What is happening rather is that some firms are exploring the opportunity to get around certain European Union laws, rather than entirely relocate:
Banks and more than 100 UK companies are inquiring about relocating to Ireland after Britain’s historic vote to leave the European Union (EU), a media report said.
Martin Shanahan, the Chief Executive of the Industrial Development Agency (IDA), on Sunday said many of the corporations looking to move were based in London, the Guardian reported.
The general view at The Guardian is that the British economy is much too dominated by finance so of course they should be delighted at this movement.
He told the Guardian newspaper that Dublin was looking to capitalise on Brexit by wooing firms with its low corporation tax rate and status as the only English speaking country in the EU after the UK leaves the trading bloc.
Theresa May has been warned of an exodus of major financial firms from London if she cannot guarantee “passporting rights” as part of our EU negotiations.
The important point here is those passporting rights.
Following Brexit, the UK’s authorised financial firms have been sending applications to relocate from London to Dublin.
The deputy governor of the Central Bank of Ireland has confirmed that several UK banks have started the application process.
“We’re seeing applications throughout the whole spectrum. We have applications for new business, the licensing of firms who are not present here but we also see very significant indications from regulated firms that are small today but want to be big tomorrow” Cyril Roux said.
To understand all of this, the essential scene setting. The European Union really is a Single Market. If you are legal to undertake some activity in one EU country then you’re good to go in all and any. That’s what those passporting rights are. It’s absolutely is not like selling, say, insurance in the US, where you need authorisation from each state you wish to sell in.
By Ben Martin
3 January 2017
The boss of JP Morgan has warned the Wall Street giant could start to move jobs out of London faster than expected if the Government does not quickly agree a deal with the EU on a transition period to stabilise financial markets.
Banks, insurers and asset managers are pushing to maintain access to the EU’s single market for several years beyond the end of the two years the UK has to negotiate an exit with Brussels.
If the City does not agree a handover period, there are fears financial markets will be plunged into turmoil once Brexit comes into force and firms potentially lose their so-called passporting rights, which allow them to sell their services across Europe.
US giant JP Morgan has approximately 16,000 staff in the UK and has previously warned it could move about 4,000 employees out of the country to cope with Britain’s secession from Europe.
Boss Jamie Dimon has now told Financial News that although he wished “we could keep it all here” in London, the bank was now bracing for a host of scenarios, including shifting 4,000 workers.
“We’ve been planning for a range of outcomes because it’s still as uncertain as a couple of months ago,” he said. “What we know now is that this will be a slow process, and all the staff moves would not happen at once but over a period of years.
“If there is not a clear transitional period decided early in the process, where passporting rules still apply for a few years after negotiations, then we’d likely have to accelerate our timetable in complying with new rules.”
Any transition period would come into force after the end of the two-year period the UK has to thrash out an exit deal. The two years start when Britain triggers Article 50, which prime minister Theresa May plans to do by the end of March.
It came as Indonesia announced it would drop JP Morgan from providing some financial services to its government, after analysts at the bank last year told investors that they should cut their exposure to bonds issued by the Southeast Asian nation.
Indonesia will now no longer use the American firm as a primary bond dealer or to handle some transfers of state revenues. The finance ministry took the decision after it disagreed with a research note JP Morgan analysts published in November, in which it warned the emerging market nation was especially vulnerable to movements in the bond markets in the wake of the US presidential election.
Paris, Frankfurt, Dublin and Luxembourg are all vying to attract firms away from London, currently the powerhouse for European finance, in the wake of the EU referendum in June. However, Mr Dimon argued “it’s very good for Europe” that London was its financial centre.
“I think the efficiencies of the financial markets here accrue to Europe, too, because they get all those efficiencies embedded in how products are priced,” he said.
The JP Morgan chief, one of the most respected bankers in the industry, also warned that his “biggest fear now” is that Brexit “causes the EU to fail down the road”. He said “there was a good reason for the European Union, for peace and for the economic prosperity from the common market”.
Mr Dimon was rumoured to be a leading candidate to become treasury secretary for US president-elect Donald Trump, a role that eventually went to former Goldman Sachs banker Steven Mnuchin. The JP Morgan boss has instead joined an economic advisory team to Mr Trump, which includes other Wall Street bosses such as BlackRock’s Larry Fink.
“He seems to like to get things done, which could be good news for US economic policy,” Mr Dimon said of the next US president, who takes charge of the world’s biggest economy on January 20.
“I joined his economic advisory team and just signed up to lead the business roundtable in DC. I think there is an opportunity to collaborate here, if we work across parties thoughtfully.”
Mr Trump has said he will roll back regulation to stimulate the US economy, although Mr Dimon said he did not believe “we should get rid of Dodd-Frank”, the wide-ranging Act that was introduced by President Obama to avoid another financial meltdown.
However, the JP Morgan chief added that “it’s true that over-regulation has been holding back growth, and big data will prove it one day”.
By Allister Heath
6 January 2017
Paris, we keep being told, is trying to grab banking jobs from London. Its PRs recently told gullible journalists that the French capital would be able to grab 20,000 City jobs, and Paris keeps being named – along with Frankfurt, Dublin and Luxembourg – as one of the centres that will seize some of London’s business. To say that I’m deeply sceptical about Paris’s chances would be a huge understatement.
For a start, while I do think that some investment banks (as opposed to other financial firms) may have to locate some jobs in the eurozone after Brexit to be able to continue to operate fully in that market, I simply do not believe that the numbers will be as large as some fear. There will be a hit, which is to be regretted, but it won’t be catastrophic. But regardless of what actually happens to London, Paris is an exceptionally poor competitor in the race for talent and capital. There are many reasons why, but one devastating statistic sheds a lot of light on the problem. There are roughly 2.2m inhabitants in Paris, which is ‘Far from growing, the population of Paris is shrinking, an astonishing development’ defined very narrowly (the best comparison is central London as opposed to (Greater) London, or Manhattan as opposed to New York City). London’s population is booming, driven by an explosion in service sector jobs, and in a high-productivity knowledge economy, a growing population is a defining characteristic of a successful metropolis. More than ever, we are becoming urban animals, with centres emerging as winners take all in terms of jobs, employers seeking out the best labour markets and skilled staff flocking to enjoyable locations.
All of the London boroughs are struggling to cope with a surging population, with the exception of Kensington and Chelsea, which saw a slight drop between 2001-11; the question is whether we can build enough quality homes and whether the infrastructure can cope. Families and youngsters are being pushed further out, damaging the economy’s resilience and quality of life. Such are the costs of success and flawed policies, the downside of London’s incredible jobs boom and transformation into a global city.
Yet Paris is bucking the trend: its problem is the reverse of London’s. Far from growing, it is shrinking – an astonishing development. Its population fell by 0.6pc between 2009 and 2014; the slump was around 5pc in the first, second, fourth and eighth arrondissement, with hardly any of the others recording any growth. Of course, the population further out in the Metropolitan area and in the Ile de France region is still growing, but the point is that the decline of Paris itself is ominous. It shows that the French capital, at the very least, has a serious problem, and at worst that it cannot possibly be seen as a serious rival to expanding super-cities such as New York or London.
There are many reasons for Paris’s woes: poor transport, high levels of crime and disorder, high costs, crippling taxes, and an anti-business, anti-development Left-wing mayor. Yet the establishment blames technology and American capitalism in the form of Airbnb for supposedly chasing out residents. It’s nonsense, of course. Jamie Dimon, the boss of JP Morgan, was commendably blunt: he told François Hollande, the lame duck president, in October that France must loosen its tight labour laws, which make it difficult for banks to recruit and shed staff if it wants to compete.
That isn’t the only barrier, of course, but it is a massive one. So could anything change? Could France finally embrace capitalism after the election later this year? I doubt it. Public opinion is hard to gauge, but the favourite in the presidential elections, François Fillon, a man who genuinely wants to push through libertarian reforms, was on up to 28 percent of the first-round vote – down by between 7 and 8 points – according to a poll by Elabe for Les Echos. Marine Le Pen is also down slightly, though just remains in second place and thus set for the run-off. Emmanuel Macron, the centre-Left candidate, is catching up: he is at between 16 and 24 percent.
Barring a major terrorist attack or some other such development, Le Pen won’t win. But would Fillon or even Macron be able to change France? The latter is a reformer, but as a Blairite rather than a genuine free-market revolutionary, wouldn’t go far enough. Fillon has already backtracked on a key policy and would face total war from the public sector if he tried to genuinely transform France. That doesn’t mean that he wouldn’t try – but given the enormity of the task, the chances of him actually succeeding are small. No sensible bank worth its salt would want to make a massive bet on France in the circumstances.
21 December 2016
Spain said Tuesday it has set up a commission charged with drawing up incentives to attract London-based financial firms looking to relocate after Britain’s vote to leave the European Union.
The goal is to draw banks and other financial firms based in the City of London seeking a new home should Britain-based firms lose their right to sell financial services across Europe when the country quits the bloc, Economy Minister Luis de Guindos said.
“I think there won’t be a stampede but there will be relocations. Many financial firms based in London know that the risk of losing the financial passport is very high and they are making their plans,” de Guindos told a meeting with the foreign press.
The Spanish capital offers solid transport infrastructure, good quality of life, abundant office space, a low corporate tax rate of 25 percent and a competitive income tax rate for foreigners, he added.
“Madrid has good chances,” de Guindos said.
But the minister said Spain needs to boost “the means, availability and efficiency” of stock market regulator CNMV to attract City of London financial firms.
To do this the government has put together a task force comprising members of the Bank of Spain, CNMV and the economy ministry, he added.
Some 5,500 financial firms based in Britain use their right to sell financial services across the EU, making London a global financial hub.
Rivalry among leading European cities to attract businesses from London is intensifying since Britons voted in June in a referendum to leave the EU.
French officials have promoted Paris as a financial capital for Europe that could take over from London while Ireland’s foreign investment agency has written to businesses with offers to help them relocate to Dublin.
Amsterdam, Frankfurt and Berlin have also made overtures. To be competitive with these cities Madrid needs a sound regulatory framework, said Carlos Fernandez, a market analyst at XTB Broker.
“The rules for financial operations, customers, liquidity, all those aspects need to be clear,” he told AFP.
So far hedge funds and large investment funds have been absent from the Spanish market in part because of the lack of clarity, he added.
By James Cook
4 January 2017
France’s digital minister Axelle Lemaire is on a crusade at the moment, travelling around the world trying to encourage startups and established technology companies to relocate or expand to France.
Lemaire is in Las Vegas this week for CES, and she spoke last year at TechCrunch Disrupt London. Her appearance in London was especially interesting as a number of startups are considering moving out of the UK after the result of the EU referendum.
The tech world overwhelmingly supported remaining in the EU. One poll found that 87% of respondents who work in tech wanted to remain.
Business Insider interviewed Lemaire about the outcome of the EU referendum, and why she feels that France is the perfect place for technology companies.
This interview has been lightly edited for clarity.
Business Insider: How many British startups have made enquiries about moving to France?
Axelle Lemaire: Many companies have already been in touch although I think many more will come in the forthcoming months when the timetable for Brexit becomes clearer.
In any case, whether they plan to leave now or have yet to decide, I’ve noticed an increased interest in the French ecosystem from British fintech companies. Whatever happens with Brexit, many startups find and continue to find France an attractive place to do business. If and when the UK leaves the single market, British startups will want to keep open access to the EU market: They will either leave the UK or at least develop their activities on both sides of the channel.
Altogether, what strikes me is the renewed interest that international investors show for France, partly but not only linked to the uncertainties created by Brexit. While investments in British startups plummeted in 2016, amounts invested in French tech have soared, increasing by 71% in January through September in 2016. In the third quarter of 2016 alone, funding obtained by French startups reached €857 million (£729 million), double the amount invested in Germany and almost equaling the €919 million (£781 million) invested in the UK.
This attention surrounding French tech is not trivial. We’re now harvesting the fruit of our longterm efforts to create a business-friendly framework and to promote worldwide the quality and versatility of our startup ecosystems, especially with “La French tech” initiative.
BI: Is France changing any of its regulations around hiring and firing to make it easier for startups to exist?
AL: In the last years this government has been implementing many regulatory reforms to promote a business-friendly environment. New labour laws and fiscal regulations have significantly lowered the burden on businesses. In the 2017 budget, we’ve cut taxes for companies who employ staff in France, cut taxes on shares distributed by startups to their employees, and enabled business angels to make tax-free investments in French startups.
Our labour law reform, six months ago, gives more flexibility and legal security to firms while creating a new framework for a more effective and constructive relationship between work unions and companies’ management. In particular, the new law generalises the primacy of firms’ agreements over branch agreements. It also makes redundancies for economic reasons more straightforward.
BI: What does the French government view as its strengths and weaknesses in the tech scene compared to Germany?
AL: I am not very keen on these comparisons which I find counter-intuitive as ecosystems in the larger European countries like Germany and France are increasingly interconnected. EU tech companies face massive global competitors from Silicon Valley and China. Our goal should be to create real European champions and not to focus on a narrow competition between European states. I strongly believe the European Union can help a lot there by promoting a homogeneous and startup-friendly framework that could help European digital champions to become truly global.
BI: Many French VCs that I’ve talked to are conscious of previous decisions by the French government which were seen as being harmful to businesses (such as the Dailymotion saga). What would you say to entrepreneurs who have seen previous work by the French government and are worried about coming to the country?
AL: Have you heard of retinal persistence? Our eyes continue to see for a few nanoseconds an image that is not there anymore, which helps the brain to make sense of the flow of information it catches. Maybe that’s what’s happening to some entrepreneurs and VCs who have not yet grasped all the essential changes that have been happening in the French environment, and are seeing it as it used to be rather than as it is now!
Actually, it’s not the case for all of them! Many understand that today’s France is business-friendly. In the coming months, we will welcome 180 new entrepreneurs from abroad, who have applied for the special package called the “French Tech Ticket.” We created the “French Tech Ticket” specifically to facilitate entrepreneuralism. It includes a €45,000 (£38,000) grant, visa facilities, and a fast track for all administrative procedures. Consider this: In 2016, the number of foreign entrepreneurs who settled in France tripled the 2015 number. Interestingly, the first nationality among entrepreneurs selected through this program was … American!
I really think entrepreneurs stuck in the past should keep up with the times or they might miss great opportunities. By the way, I’m not alone in this view. Take John Chambers from Cisco for instance, who decided to double his investment in France this year, saying “France is the next big thing…”
BI: Station F is obviously a big boost for the French tech scene. How much participation is the French government having there?
AL: Station F will be the biggest startup incubator in the world with 30,000 square meters of space and will host no fewer than 1,000 startups. This private project is led by our successful entrepreneur Xavier Niel. It symbolises the maturity of our ecosystems and the will of our entrepreneurs to reinvest to support the ecosystem. It has full support from the French government. Our national deposit and consignment fund will have a minority shareholding in it.
BI: You spoke recently at TechCrunch Disrupt in London, and you’re now going to CES in Las Vegas. How do you see the division between working domestically to support French companies and doing international outreach? Is there a danger of spending too much time abroad?
AL: Startups think globally so as minister for digital affairs and innovation I do so to and strive to show the entire world how strong French tech is. That’s why I try to attend major events like TechCrunch Disrupt London or CES. But be assured I still spend most of my time working directly with the French innovative ecosystems in Paris and in our 13 French tech metropoles.
BI: Is there a danger of creating a single tech hub in Paris and ignoring the rest of the country? That’s something that the UK has struggled with — how is France avoiding that?
AL: I’m glad you asked this question. This is a very important issue to me. Since the start, we’ve conceived French tech as a network of versatile local ecosystems spread all around the country, rather than a Paris-only business. One of the first programs I launched was to support 13 French tech metropoles, which included cities with robust local innovative ecosystems throughout the country like Montpellier, Bordeaux, Grenoble, and Lille. Startups from all of these 13 “Métropoles” will actually attend CES this year. We want our entrepreneurs to know that they can create a startup and make it grow in the place where they come from.
We’ve been investing a lot in hardware too in order to make this vision a reality. In 2013 we launched a €20 billion (£17 billion) investment program to spread ultra-fast optic fiber internet broadband all around the country. It’s being rolled out now and by 2024 every city or village in France will be connected to high-speed internet.
BI: France has traditionally been seen as a hub for media companies and video games, but something that it isn’t known for as much is fintech. How is France suited to fintech companies?
AL: France is very well-positioned in the fintech market for several reasons. First, the size of the payment market, with around 65 million payment cards circulating in France. Second, some historical players in this field, like Gemalto or Ingenico, were founded in France. Third, our engineers are arguably the best in the world, a key point for this sector, particularly hungry for talents and technical competences. This is one of the reasons why blockchain technology is developing so rapidly in France with numerous applications, chiefly in the financial field.
A fourth key support mechanism for French fintech is smart regulation. A series of new laws have boosted the development of fintech in France. For instance, my government has allowed transactions of non-listed securities to rely on blockchain technology; the Digital Republic law that I led through Parliament set a threshold under which no authorisation is needed from the regulators to start a business in this field.
Last but not least, our regulatory authorities are well-known for being very meticulous, which results in quality authorisations that are valued everywhere in Europe. And they have set up a one-stop shop, which streamlines and speeds up authorisation procedures for those who want to settle in France, whether it is due or not to Brexit.
All this context enables fintech innovators to thrive in this ecosystem and to rapidly scale to a critical size.
BI: You’ve said multiple times that you don’t need to pay for buses with adverts in London (or anywhere else). You may not need that now, but would you consider that in the future if you felt your current outreach wasn’t having the impact you want?
AL: I have no reason to think this kind of communications trick will be necessary to shed light on the quality of the French innovative environment. As minister for digital affairs, I’ve been meeting lots of entrepreneurs and investors around the world. When it comes to where to put their money, they don’t rely on promotion but on facts. Is the fiscal and social environment business-friendly? Is the ecosystem dynamic and mature? Is it easy to find staff with excellent skills there? Just consider the latest investment rates in France, you’ll see we’ve been quite convincing … without having to resort to renting any buses.
BI: France has traditionally been seen as risk-averse in its approach to business. Is that changing now, do you think?
AL: Yes, it has really changed. I see it every day. According to a recent study, one in every three French people under 30 would like to create a startup within the next two years, and 52% of French people believe that startups can save the economy. More and more new graduates want to create a startup rather than work for a big firm. We were a country of engineers and we are becoming a country of entrepreneurs. I believe that La French Tech initiative played a great role in this cultural revolution.
BI: Is it correct that coding isn’t currently on the curriculum in France, but is an optional course in schools at a certain age? Isn’t that a barrier towards creating a new generation of tech works? How is the French school system geared towards technology?
AL: Things are changing fast as far as education is concerned. Now all French kids in all schools are taught to read, count, write, and code. The ministry for education launched a digital plan which is promoting the use of digital tools by both children and teachers from primary school to high school. It will still take time to bring the education community up to speed with the digital challenges but the journey has started for good.
In order to develop digital skills and fill the needs of our companies, we also created in 2016 the “Grande Ecole du Numérique” — one could translate it as the great digital college — which is a network of 255 labelled digital courses throughout France, open to everyone. Roughly 10,000 people fully trained in web development, graphic design etc. will have completed one of these courses by 2017.
By Jill Treanor and Lisa O’Carroll
3 January 2017
Brexit could have an impact on the City in the coming months as banks decide whether to implement contingency plans to ensure they retain access to the remaining 27 EU member states by moving business out of the UK.
Theresa May, the prime minister, intends to trigger article 50 – the formal process of exiting the EU – in March and some senior officials in the financial district argue that the rest of Europe could lose out if operations are shifted out of London.
The local authority for the financial district, the City of London Corporation, has urged May to arrange transition arrangements “as soon as possible” to allay concerns of businesses which were delaying investment decisions.
Andrew Gray, head of Brexit at the consultancy firm PricewaterhouseCoopers (PwC), which is advising several financial services institutions, said announcements could start in late February, when banks publish their preliminary results.
“A number of big banks are finalising plans for announcements they will make [this] year,” he said.
In the run-up to the 23 June referendum, banks warned about the consequences of a vote to leave the EU. US bank JP Morgan said it could move 4,000 of its 19,000 UK workforce. Its main offices are Canary Wharf, Bournemouth and Glasgow. Britain’s biggest bank, HSBC, said it might need to shift about 1,000 staff to existing operations in Paris.
A report for the lobby group CityUK by PwC, calculated that there could be 100,000 fewer jobs by 2020.
Banks may not be able to delay moving of some of their operations to the remaining EU member states – even if the government were to announce a transition period beyond the two years after triggering article 50 – because of the time it takes to get authorisation from regulators and installing new management teams.
The director of policy and strategy at CityUK, said businesses did not want to move. “There’s a real stickiness. People are here for a reason. It’s a good place to do business,’ Gary Campkin said.
“The important thing is to make sure we focus on ensuring decisions aren’t made too early or too quickly and that’s why stability is crucial.”
The Corporation of London has published data showing that financial and professional services firms employ more than 2.2 million people across the UK, not just in the City.
Campkin said: “The important thing is there is clear recognition from the UK and the EU 27 that transition arrangements, bridging arrangements, or an interim period are an important part of the process”.
This involves two arrangements: the first when article 50 is triggered to the point when the UK leaves the EU; the second covers the period from exit to allow businesses time to adapt to the new arrangements.
“This is a negotiation. It’s not just about what the UK wants. The EU 27 needs to think really carefully what’s at stake for them too … That means, whether EU corporates know it directly or not, that they will be getting benefit from access to London,” he said. New York or Singapore could benefit, he added.
Bank of England officials have warned there could be an impact on the wider EU. Sir Jon Cunliffe, deputy governor, has said economies across the EU could lose out and that operations may move to New York, rather than another financial centre in Europe.
Sam Woods, another deputy governor at the Bank, has said the regulator is being kept informed of contingency arrangements being drawn up by City firms.
Anthony Browne, chief executive of the British Bankers’ Association, said all EU member states had a mutual interest in ensuring the period between concluding the UK’s exit from the trade bloc and any new relationship did not result in disruption to businesses and customers.
“Including transitional arrangements in the UK’s withdrawal agreement under article 50 would avoid a cliff-edge moment and ensure an orderly transition post-Brexit,” he said.
General Brexit news:
Brexit: Will EU bodies be staying in London or going?
By Gavin Stamp
6 January 2017
It is not just the UK’s future in Europe at stake in the forthcoming Brexit negotiations. The EU also has a large footprint in the UK, which could be about to get a little smaller in the next few years.
There has been plenty of speculation about whether the UK will remain in the single market or the customs union, what will happen to EU subsidies for key industries such as farming and fishing and whether the UK will remain a part of valued EU-wide educational and scientific programmes such as Erasmus and Horizon.
All this will be subject to negotiation over the next couple of years.
But what about the future of EU agencies and other EU-funded bodies actually based in the UK? In their cases, there could be a much quicker shakedown.
Of the EU’s seven institutions, the European Commission is the one with a major organisational presence in the UK.
Its central London headquarters, based in the former Conservative Central Office building, co-ordinates its activity in the UK – while there are also offices in Edinburgh, Belfast and Cardiff.
Approximately 35 staff, who also represent the European Parliament, play an important role in reporting back to Brussels on political developments in the UK, explaining EU policies to the media, business and public and acting as the commission’s voice.
Will any of this be needed after Brexit? At first glance, it might seem unlikely, but the reality is that whatever happens, the UK and EU will retain a close relationship. The EU will remain the UK’s largest trading partner by some way – for the foreseeable future at least.
Bearing this in mind, it seems unthinkable that there will be no official links between two.
The EU has diplomatic missions in the US, China and many other major economies where their officials have full ambassadorial status, working alongside counterparts from leading EU nations. This is a model that could be adopted in the UK after Brexit.
But the future for the EU’s two UK-based agencies – among 40 powerful executive and regulatory bodies dotted across Europe – is much less certain.
The European Medicines Agency (EMA) and the European Banking Authority (EBA) are legal entities in their own right, set up to perform specific tasks under EU law.
Their staff are generally highly skilled, well-paid and prized elsewhere.
Responsible for evaluating applications to market new drugs, facilitating access to treatments and monitoring the safety of products, the EMA has been located in the UK since 1995.
But, following the UK’s vote to leave the European Union, countries including Sweden, Spain, Denmark and Ireland are among those reported to be keen on luring the organisation and its 890 staff to their shores.
Its executive director, Guido Rasi, told the Financial Times that the uncertainty surrounding its future after Brexit had led to “all the bad things you might expect” including increased turnover of staff and reduced interest in vacancies.
While the decision on whether to move could hinge on the deal negotiated by the UK, he suggested any upheaval would have an impact on Europe’s pharmaceutical and biotech sector, including British companies.
“If we are losing expertise, we have to focus on managerial things, HR issues,” he said.
“Of course our capacity and commitment to provide additional support to this community would be decreased and that would make a fragmented Europe in terms of pricing and enforcement.”
If the head of the EBA is to be believed, a decision on the banking regulator’s headquarters is already settled.
The week before June’s referendum, its chairman, Andrea Enria, told the German newspaper Welt am Sonntag that the regulator would move to another European capital in the event of a Leave vote.
Any such shift would have to be approved by all EU members – including the UK while it is still in the union – so it might conceivably not happen straight away.
The European Commission has said no decision, let alone discussion, about the future of its agencies will take place until official talks about Brexit begin – expected this Spring.
But the fact one of the EBA’s principal goals is to create a single rulebook for financial institutions across the EU would seemingly make it hard for it to remain where it is.
Professor Rosa Lastra, Chair in International Financial and Monetary Law at Queen Mary University of London, says it is “a given” that the agency will have to find a new home.
“The only way to keep the EBA in London is for the UK to remain in the single market, via some form of soft Brexit, which appears to be opposed by the government,” she says.
June’s Leave vote has set off a veiled bidding war to host the EBA, with Paris, Frankfurt, Milan, Warsaw, Luxembourg and Stockholm all rumoured to be interested in attracting the regulator, set up in 2011 in the wake of the banking crisis.
Although the agency is relatively small by European standards, it is growing in size – its budget rose by 20% to £38m this year – and its loss could be keenly felt by the City.
“When it moves, the City will lose the opportunity to influence rule-making in the single market in financial services,” Prof Lastra, who has advised the House of Lords, among other British institutions, on financial regulation.
“Whether or not that will affect the City’s status as Europe’s pre-eminent financial centre – and one of the world’s – will depend on the negotiations once Article 50 is triggered and on the model of trading in financial services that finally gets adopted.”
One multinational organisation that is definitely staying put in London is the European Bank for Reconstruction and Development, created in 1991 to help former Communist nations of Central and Eastern Europe, the Baltics and the Caucuses build fledgling market economies and replace their ageing infrastructure.
Although the EBRD – which counts the EU and European Investment Bank among some of its largest shareholders – has increasingly chosen to locate staff in client countries, it says there has been no thought about moving its headquarters from London, either to the Continent or elsewhere.
“We are not an EU institution but an international organisation with more than 60 countries as shareholders which include, alongside the EU 28, the United States, Japan, Canada and many others,” said a spokesman.
“There is no discussion about relocating the bank outside of London post-Brexit.”
By Gavin Cordon
25 December 2016
Donald Trump’s new trade chief has urged Britain’s rivals to take advantage of the “God-given opportunity” of Brexit to take business away from the UK.
Wilbur Ross, the US commerce secretary designate, said Britain was facing a “period of confusion” following the vote to leave the EU and that it was “inevitable” there would be “relocations”.
The billionaire businessman will be responsible for negotiating a free trade deal with the UK and his reported comments will raise concerns the incoming US administration will seek to exploit Britain’s isolation following Brexit .
Mr Ross was reported by The Times to have made his comments to an audience of Cypriot financiers in the days following last June’s referendum vote – before he had been appointed to Mr Trump’s cabinet.
“I recommend that Cyprus should adopt and immediately announce even more liberal financial service policies than it already has so that it can try to take advantage of the inevitable relocations that will occur during the period of confusion,” he said.
He is said to have added that the UK’s withdrawal from the EU was a “God-given opportunity” for financial rivals of the City of London, naming Frankfurt and Dublin in particular.
Labour said his comments, should be a “salutary warning” that other countries were ready to take advantage of the UK’s vulnerability post- Brexit .
Shadow international trade secretary Barry Gardiner told The Times: “Wilbur Ross’s comments are a stark reminder that the trade deals Britain will agree in future will not depend on goodwill from our partners, but on their own shrewd political and economic calculations.
“Theresa May’s government has failed to articulate a coherent vision of what kind of economy Brexit Britain will be.
“This makes us weak and vulnerable in the eyes of others.”
By Zlata Rodionova
20 December 2016
UK-based banks could sue the European Union if the bloc does not grant them a transitional deal as part of Brexit negotiations, lawyers have warned.
Businesses, particularly within the financial services industry, have long pushed the government to go for a transitional arrangement.
A cross-party group of peers, last week, said Britain’s financial sector must be offered a “Brexit bridge” to prevent companies moving to rival locations such as New York, Dublin, Frankfurt or Paris.
However, Linklaters, Freshfields and Cliffords, three of the UK’s largest law firms, said banks operating in Britain have a legitimate legal right to retaining passporting rights and continuing to operate across the EU after the UK leaves the bloc, in a new report published this week.
Banks could appeal to the European Court of Justice on the basis that they have a right to “legal certainty” of a stable regulatory environment, according to the document, citing the Vienna Convention on the Law of Treaties.
“EU law cites a number of different bases for requiring transitional arrangements,” the document said.
“A failure to do so could possibly create an entitlement for an affected EU firm to take action against the commission.”
Finance companies are pressing Britain and the EU to agree to a transition deal that would keep many of the current arrangements for up to five years to help cushion them from the effects of Brexit.
There is no indication yet that banks are considering using the law to challenge the EU. Other lawyers say it would have limited chances of succeeding.
However, the fact that banks and lawyers are exploring these options shows the work they are doing to find work arounds, mainly to buy time before they decide if they will move some operations from Britain to the continent.
Lloyd’s of London has become one of the first major City businesses to confirm it will move a part of its operations to the continent in reaction to the UK’s vote to leave the EU.
Meanwhile, Japanese banks, including Nomura and Daiwa Capital Markets, have told the Government they will begin moving operations to the EU within six months unless the Government can provide clarity on the UK’s access to the single market.
28 December 2016
Business and banking leaders have offered further commitments to the UK post-Brexit, as it emerged that growth in British businesses has fallen to a four-year low.
Google executive Matt Brittin and Barclays chairman John McFarlane praised the UK’s expertise in technology and financial services respectively, saying this gave businesses a reason to stay here.
It comes as just 39pc of UK firms surveyed by the Chartered Management Institute said they experienced growth following June’s referendum, which was the lowest figure since 2012.
Of the 1,118 UK business managers surveyed, 65pc are now pessimistic about the UK’s economic prospects over the next 12-18 months, and 49pc expect Brexit will have a negative impact on growth over the next three to five years.
Around 35pc of bosses polled said they also “lack confidence in current UK leadership and management’s ability to capitalise on post-Brexit opportunities”.
However, Mr Brittin, who heads up Google’s business and operations in Europe, told the BBC Radio 4 Today programme that the company was looking to focus on “big trends” amid this uncertainty, such as more people getting access to the internet.
He added: “The UK is starting with a lead in this area, so a world leader in e-commerce. So for us, there’s great talent here in the UK.
“We announced an intention to create 3,000 more jobs here in a big new investment in our facilities here, but that’s only because the UK is so good at the internet that we can support companies here in that growth agenda.”
Mr McFarlane, meanwhile, said there were some services currently based in the City of London which would make sense for both Britain and the EU to stay here post-Brexit.
He said: “The City of London is here because of its competitive advantage and therefore that is the reason why people are here.”
He added that Barclays was increasingly focusing on the UK and US markets.
In the Chartered Management Institute survey, three-quarters of those polled said skill investment would be even more important after the UK left the EU, though 20pc said they did not receive the training and development needed to “perform their job effectively” this year.
But only 25pc were pessimistic about prospects for their own businesses, in line with levels recorded by the Chartered Management Institute over the past year, while 57pc were positive about their business’s performance in the year ahead.
Ann Francke, chief executive of the Chartered Management Institute, said: “In this climate of heightened political uncertainty and economic turbulence, the time is now to position Britain as a global leader in responsible capitalism, targeting essential issues like workplace ethics, inclusivity and executive pay to restore trust and transparency and improve productivity.”
Fund manager Helena Morrissey said Brexit could be a success.
She said: “I’m not complacent by any means, but I’m not worried. The City was successful long before the EU was created, and it has all the potential, particularly with our global outlook, our very innovative approach, obviously we have fantastic talent here, to be successful for decades if not centuries to come.
“We have had people before flexing their muscles, as it were, and saying they’re out of here and then realising, actually, London is the place to be and we have a huge amount going for us that would be incredibly difficult to replicate anywhere else.
“We do have to have a different mindset, I think. We do have to embrace the opportunities, we have to look forwards, not at what we might have lost, and I think that’s something that isn’t quite there yet.”
Rishi Khosla, co-founder and chief executive of challenger bank OakNorth, told the programme his company had tripled its loan book in the few months since the Brexit vote.
He added: “We think a part of that is actually a function of businesses not being able to get the speedy responses from the big banks, but even less timely responses from the major banks, and actually therefore looking at alternatives.”
City bosses to face MP grilling over Brexit claims
By Ben Martin
8 January 2017
Three of the City’s most powerful figures face a grilling from MPs over suggestions banks and other financial services firms exaggerated the threat posed by Brexit.
Douglas Flint, chairman of HSBC, London Stock Exchange boss Xavier Rolet, and Elizabeth Corley, vice chairman asset manager Allianz Global Investors, will appear before the Treasury Select Committee (TSC) on Tuesday.
The influential panel of MPs has launched an inquiry into the future of Britain’s economic relationship with Europe once it leaves the EU. It is understood MPs’ will investigate whether City firms have embellished the likely impact of Brexit on the Square Mile, in an attempt to pressure the government into prioritising the financial services industry during negotiations with Brussels.
It comes after the chief economist of the Bank of England conceded last week that the warnings of an economic downturn forecasters sounded before the EU referendum had been a “Michael Fish” moment – the infamous episode in 1987 when the BBC weatherman said there would be no hurricane the night before the Great Storm.
Andy Haldane admitted that some of the bleakest Brexit forecasts might transpire to be “just scare stories” and that economics was now in “crisis”. Mr Rolet’s predictions have been among the most doom-laden.
In the run-up to the Referendum he told the Sunday Telegraph that Brexit would lead to ‘implosion’ of the continental bloc. In September, the stock exchange boss claimed that as many as 100,000 jobs across the country are at risk if exiting the EU results in the loss of the clearing industry from the UK.
The clearing of some £460bn of euro-denominated derivatives a-day is set to be one of the main financial battlegrounds in negotiations between London and Brussels. European cities such as Paris and Frankfurt are vying to takeover the industry, although Mr Rolet has suggested most clearing will move to New York after Brexit.
HSBC said it could move about 1,000 employees from London to Paris if the UK left the EU, although Mr Flint appeared to row back on that claim following the referendum, saying that such a move would be an “extreme” scenario.
One of the main worries of executives at banks, asset managers, and insurers with European operations based in the UK is that their firms will lose access to the EU’s single market once Britain leaves.
This would force firms to move employees onto the Continent so that they can keep selling services to European clients, bosses argue. As a result, many are pushing for a lengthy transition period to give the City time to iron-out the intricacies of Brexit.
By Gemma Tetlow
29 December 2016
Optimism among the UK’s largest businesses reached an 18-month high at the end of 2016, as concerns about the short-term effects of the Brexit vote and worries about the global economy receded.
A new survey of the chief financial officers of major UK businesses has found that on balance, CFOs were more optimistic about their companies’ prospects compared with three months earlier.
This is the first time since the second quarter of 2015 that the net balance has been more optimistic. However, two-thirds still believe that Brexit will have an adverse effect on the business environment in the longer term.
Despite some pre-referendum predictions to the contrary, the UK economy has continued to grow steadily since the Brexit referendum. Output increased 0.6 per cent in the third quarter and early indications of activity in the fourth quarter suggest the dominant services sector has continued to expand. However, much of this has been driven by consumer spending, while business confidence has recovered less quickly.
“Buoyed by a backdrop of continued UK growth, CFOs have become markedly more positive on the outlook for their businesses and enter 2017 in better spirits than at any time in the past 18 months,” said Ian Stewart, chief economist at Deloitte, the consultancy that carried out the survey.
In the fourth quarter, 27 per cent of respondents said they were more optimistic about prospects for their business than three months earlier, while 22 per cent were less optimistic — giving a net balance of +5. This compares with a net balance of -31 in the third quarter and -70 immediately after the referendum.
The immediate impact of the Brexit vote is not the only risk that has receded during recent months. At the start of 2016, businesses and commentators were also worried about prospects for the global economy. There was concern that loose monetary policy in the eurozone was failing to stimulate growth and that there was a risk of a US recession. There were also fears that weak growth and falling asset prices in China could lead to a sharp slowdown in the country while low commodity prices posed a risk to other emerging markets.
However, CFOs still report a very high level of uncertainty and defensive strategies are still a priority for 2017.
Almost nine in 10 CFOs said the level of financial and economic uncertainty facing their business was above normal, high or very high and only 21 per cent thought now was a good time to take risk on to their balance sheets, well below the level in 2014 and early 2015.
Nearly half of CFOs said reducing costs was a strong priority in the next year and two-fifths said increasing cash flow — another defensive strategy — was important. This compares with 36 per cent who said introducing new products or services or expanding into new markets were strong priorities. This was the top-ranked expansionary strategy.
“Risk appetite remains depressed and is well below average levels and corporates remain on a defensive footing,” said Mr Stewart. “Cost reduction and building up cash [are corporates’] top priorities.”
Although CFOs’ concerns about the near-term outlook have diminished, most still expect the Brexit vote to depress their spending or hiring during the next three years. Just over half said they expected to decrease discretionary spending, 39 per cent expected to reduce hiring, and 35 per cent expected to cut capital expenditure.
The survey featured responses from 119 FTSE 350 and other large private companies and was carried out between November 29 and December 12. The combined market capitalisation of the 81 listed companies that participated was £396.3bn.
By Zlata Rodionova
20 December 2016
Britain’s legal services sector has warned the industry could be at risk if the government fails to secure guarantees for it after the UK leaves the EU.
A report, produced by lobby group TheCityUK, said Britain’s legal sector, which contributed roughly £26bn to the economy in 2015 and employs around 370,000 people across the country, will suffer if it loses mutual enforcement rules – which requires EU member states to recognise and enforce UK law and vice versa.
The loss of these rights would make Britain a “less attractive” for international businesses to resolve legal dispute and draw up commercial contracts, the group argued.
TheCityUK also called for the principle of free movement of people to continue to make sure the legal sector would not only retain access to overseas talent after Brexit but also provide clarity on how laws and judgments can continue to operate cross-border in EU member states.
More than 200 foreign law firms operate in the UK and employ in excess of 10,000 people.
UK sector turnover is two-and-a-half times that of Germany and four times more than France, which are Britain’s two largest competitors in Europe.
Miles Celic, chief executive at TheCityUK, said: “The UK-based legal services sector is the leading global centre for the provision of international legal services and dispute resolution”
“It is vital that the key challenges and opportunities for the sector are addressed in the Brexit negotiations and that its competitiveness is maintained and enhanced.”
“The sector is working on these issues and providing that insight into Government, allowing Ministers to draw on the UK’s unique reserve of world-leading legal expertise”
“The best Brexit deal will be one which is mutually beneficial to the UK, the EU and globally and which allows for a clear and predictable shift from current business conditions to whatever new arrangement is agreed.”
By Stuart Pickford and Mark Compton
6 January 2017
The risk and uncertainty of Brexit has cast a shadow over parts of the City, with some worried that two of London’s great crowns – global litigation centre and global financial capital – will be threatened. But how much will London’s standing on the world stage change in these respects as a result of Brexit?
Of course uncertainty abounds, but there are several reasons to be optimistic that London will maintain its position as a leading centre for cross-border business disputes.
First, London is a truly international dispute centre, with the majority of Commercial Court litigants coming from overseas. Portland Communications recently reported that 66 per cent were from outside the UK, with the majority of those being non-EU parties.
There is no reason why Brexit should undermine the respect enjoyed by the English legal system or the reputation of its judiciary. The court process is well-understood and supported by a strong UK legal services sector, with substantial investment having been made in recent years to give the Commercial Court a home fitting its premium brand in global dispute resolution.
English commercial law will continue to be well-known for its emphasis on respecting rather than re-writing contracts, and for applying established principles while developing to keep pace with the world outside the courtroom.
But EU law does play an important part in cross-border litigation, in particular on how to determine which country’s laws apply, where cases should be heard and the critical issue of how judgments can be enforced in different member states.
The remaining member states will still generally be required by EU law to uphold a choice of English law. And legal industry bodies are at pains to ensure the government appreciates the practical advantages of the existing EU framework on reciprocal jurisdiction and enforcement, or at least of having something of similar effect. Whatever happens, it is likely that contracting parties will remain free to agree to litigate in England, with English judgments enforced across a large number of jurisdictions.
Even with today’s uncertainty, the pre-eminence of English law in cross-border contracts and the strength of our legal system still give London a firm foundation to remain one of the world’s international dispute centres.
So one crown may remain for London, but what about our financial status?
Passporting is obviously an issue and, although operating in the City without a full EU passport will impact many financial institutions’ operations, some may conclude that they will have a reasonable chance to continue to provide services into the EU even if the passport ceases to be available. This is because EU legislation permits institutions that are not located in the EEA to provide certain cross-border services to customers without needing local licences if that institution is regulated in a jurisdiction with laws that are “equivalent” to those of the EU. The UK is on target to implement all applicable EU financial services legislation by the time we leave, so the UK’s laws should not only be equivalent but essentially identical to those of the EU.
However, “equivalence” is not a guaranteed right; it is at the gift of the EU Commission, so the granting of its status is likely to become political and cannot be relied upon.
The City will remain a significant global financial centre after Brexit because it will retain many functional, organisational, institutional and legal advantages over other alternatives and opportunities may be created, but Brexit and the loss of the EU passport will inevitably have an impact.
The City may not see a mass exodus the day after we leave the EU, but if Brexit means firms have to restructure, relocate or lay-off staff, transact through a longer chain of entities and lose the benefits of the concentration of clearing and liquidity, we could see incremental costs to capital raising, investment and hedging that together might damage the City and the wider economy.
Ultimately, even if negotiations with the EU result in a favourable outcome for the City, the threat of Brexit’s unknowns presents its own dangers. This is one of the reasons the City is pressing for an early agreement on transitional provisions to smooth the exit and possibly reduce the need for firms to react on the basis of insufficient information.
By Zlata Rodionova
19 December 2016
Britain’s hedge funds lobby groups are to lay out their wish list for Brexit negotiations, which will include access to EU investors and workers, in order to mitigate the damage a so-called hard Brexit could have on the City.
Hedge fund managers in the UK find themselves in an increasingly precarious position following Britain’s decision to leave the EU. A hard Brexit would result in the UK leaving Europe’s single market and therefore the loss of crucial passporting rights, which allow financial firms to sell their services freely across the rest of the EU.
The Alternative Investment Management Association (AIMA), Managed Funds Association and the Alternative Credit Council, which kept studiously quiet ahead of the EU referendum, will publish a document this week urging for those rights to be maintained, according to a draft document seen by the Financial Times.
Assuming the UK will leave the single market, the group will call on the Government to strike an equivalent agreement to maximise access to EU investors
According to AIMA figures, cited in the FT, about 85 per cent of European hedge fund assets are managed from the UK, and investment from Europe accounts for about a quarter of the money managed by UK firms.
Meanwhile, the industry contributes nearly £4bn annually in tax, while also providing more than 40,000 jobs across the UK.
Losing the ability to hire talent from the EU would also hit the industry as 20 per cent of its employees in London come from the EU.
A cross-party group of peers, in a new report published last week, said Britain’s financial sector must be offered a “Brexit bridge” to prevent companies moving to rival locations, such as New York, Dublin, Frankfurt or Paris.
The Lords also stressed the need for businesses to have access to highly-qualified staff and easily transfer them between the EU and the UK after Brexit.
For some companies, it might already be too late.
Lloyd’s of London has become one of the first major City businesses to confirm it will move a part of its operations to the continent next year in reaction to the UK’s vote to leave the EU.
3 January 2017
The UK’s ambassador to the EU, Sir Ivan Rogers, has resigned.
Sir Ivan, appointed to the job by David Cameron in 2013, had been expected to play a key role in Brexit talks expected to start within months.
The government said Sir Ivan had quit early so a successor could be in place before negotiations start.
Last month the BBC revealed he had privately told ministers a UK-EU trade deal might take 10 years to finalise, sparking criticism from some MPs.
Ministers have said a deal can be done within two years.
Labour said Sir Ivan’s departure was “deeply worrying” and Prime Minister Theresa May must be prepared to listen to “difficult truths” about the likely complexity of the Brexit process.
The diplomat was due to leave his post in November.
A government spokeswoman said: “Sir Ivan Rogers has resigned a few months early as UK permanent representative to the European Union.
“Sir Ivan has taken this decision now to enable a successor to be appointed before the UK invokes Article 50 by the end of March. We are grateful for his work and commitment over the last three years.”
Prime Minister Theresa May says she will trigger formal talks between the UK and the EU by the end of March, setting in place a two-year negotiation process.
Sir Ivan is a veteran civil servant whose previous roles include private secretary to ex-chancellor Ken Clarke, principal private secretary to ex-PM Tony Blair and Mr Cameron’s Europe adviser.
He was criticised in some quarters for “pessimism” over Brexit after his advice to ministers – which he said reflected what the 27 member states were saying – was reported.
Pro-EU figures raised concern about the impact of Sir Ivan’s departure, while Brexit campaigners welcomed his decision. Former Lib Dem leader Nick Clegg, who once worked for Sir Ivan in Brussels, described his resignation as a “body blow to the government’s Brexit plans”.
He added: “If the reports are true that he has been hounded out by hostile Brexiteers in government, it counts as a spectacular own goal.”
Labour MP Hilary Benn, who chairs the Brexit select committee, said it had come at a “crucial” point and urged the government to “get its skates on” in finding a replacement. “It couldn’t be a more difficult time to organise a handover,” he added.
Mr Benn told BBC Radio 4’s The World at One the permanent representative’s job was to convey the view of the UK to other member states, as well as “honestly and fearlessly reporting back” what those countries in turn said about the negotiations.
But former Conservative cabinet minister John Redwood said Sir Ivan had made a “very wise decision”, saying his leaked advice suggested he did “not really have his heart in” Brexit, believing it to be “very difficult and long-winded”.
He said the new ambassador should be someone “who thinks it’s straightforward”.
Former UKIP leader Nigel Farage said he welcomed Sir Ivan’s resignation, adding: “The Foreign Office needs a complete clear-out.”
But former chancellor George Osborne said Sir Ivan was a “perceptive, pragmatic and patriotic public servant” while the Treasury’s former top civil servant, Lord Macpherson – who is now a crossbench peer – said his departure marked a “wilful” and “total destruction” of EU expertise within Whitehall.
By Timothy Ross
19 December 2016
Scotland will hold a new referendum on separation from the UK unless it can stay in the European Union single market, Nicola Sturgeon will warn this week, adding to the pressure on Theresa May as the UK prime minister draws up plans for Brexit.
Scottish First Minister Sturgeon will detail proposals for a new arrangement with the UK to enable her country to remain inside the single market area after Brexit, even if the London government pulls England out. Voters in Scotland chose to stay in the EU in June’s referendum and now face being pulled out against their wishes by votes cast in England, she said in an commentary published in the Financial Times on Sunday.
“It remains my view, and that of the government I lead, that the best option for Scotland remains full membership of the EU as an independent member state,” Sturgeon said. “Independence must remain an option for safeguarding our European status, if it becomes clear that our interests cannot be protected in any other way.”
The ultimatum from Edinburgh on single-market membership will intensify the strain on May, who’s already battling to contain tensions within her own Conservative Party. On Sunday, Liam Fox, the International Trade Secretary, hinted that he was keen for a clean break from Brussels, while the former chancellor, George Osborne, warned that the UK should keep the closest possible ties to the bloc.
May has promised to listen to the governments of Scotland, Wales and Northern Ireland before taking an agreed UK-wide negotiation position to Brussels for formal talks, due to begin by the end of March.
Sturgeon said she wanted the UK as a whole to remain inside the single market, with tariff-free trade and freedom for banks to provide services across the 28-member bloc. “If the UK government opts not to remain in the single market, our position is that Scotland should still be supported to do so – not instead of, but in addition to, free trade across the UK.” she said.
A policy paper will outline how such a radical step could be achieved, including which powers would need to be devolved from London to Edinburgh, she said, warning that 80,000 jobs would be lost if Scotland left the single market. Such a solution will require “political goodwill and an openness to new ways of doing things,” Sturgeon said.
On Sunday, Fox warned that if the UK sought to remain part of the customs union – the EU’s tariff-sharing trade bloc – it would “limit” the country’s options for new trade deals. He told the BBC’s Andrew Marr Show that Turkey could provide a hybrid model for partial membership of the customs union, adding that the UK’s future relations to the group didn’t have to be “binary.”
In an interview on the same show, Osborne warned against ending tariff-free trade with Germany and France after Brexit. He said leaving the single market and the customs union would be the biggest act of protectionism in British history.
By Matthew Taylor
8 January 2017
Theresa May has denied the government’s approach to Brexit is muddled and indicated she will prioritise control of the UK’s borders over access to the single market.
The prime minister said the UK would be able to secure control over immigration after it left the EU and would then negotiate “the best possible trade deal” with the rest of Europe.
In her first broadcast interview of the new year, May said: “Often people talk in terms as if somehow we are leaving the EU but we still want to kind of keep bits of membership of the EU. We are leaving. We are coming out. We are not going to be a member of the EU any longer.”
Last week, the UK’s ambassador to the European Union, Sir Ivan Rogers, quit his post, urging his fellow British civil servants in Brussels to assert their independence by challenging “ill-founded arguments and muddled thinking”.
However, during an interview on Sky News, May rejected Rogers’ description of the government’s approach.
“Our thinking on this is not muddled at all,” she said. “Yes we have been taking our time … It was important for us to take our time and look at the issues.”
EU leaders have repeatedly said that the UK cannot have full access to the single market without agreeing to free movement of people.
Asked repeatedly whether she was prepared to sacrifice full access to the single market for control of the UK’s borders, May said it was not a “binary choice”.
“The question is what is the right relationship for the UK to have with the European Union when we are outside. We will be able to have control of our borders, control of our laws.
“This is what people were voting for on 23 June. But of course we still want the best possible deal for us, companies to be able to trade, UK companies to be able to trade in and operate within the European Union, and also European companies to be able to trade with the UK and operate within the UK.”
By Jim Pickard, Patrick Jenkins and George Parker
28 December 2016
London will remain the world’s leading financial centre in spite of Brexit, according to a senior City figure, in remarks that will boost Tory Eurosceptics who say lobbyists have exaggerated the threat.
Mark Boleat, policy chairman of the City of London Corporation, said there was considerable “nervousness” about a possible regulatory cliff-edge when Britain leaves the EU.
But he said: “I have no doubt that whatever happens in 2017, the City of London will remain the world’s leading financial centre.”
His comments reflect the view among pro-Brexit figures that the City will emerge with its global reputation intact, as lawyers devise ways to minimise the impact of leaving the EU.
Mr Boleat said it was vital that a transition deal was agreed early in negotiations to give the City enough time to adapt to a new regulatory regime; chancellor Philip Hammond is backing that cause.
“Firms’ nervousness can only be allayed if they know how they can continue running their business,” Mr Boleat said. “Important strategic business decisions are being delayed and much-needed investment postponed or withdrawn altogether.”
City UK, a lobby group, claimed in September that in certain conditions — with the UK denied “passport” access to European financial markets — there could be 70,000 job losses after Brexit.
But Steve Baker, a Tory MP co-chairman of Conservatives for Britain, said: “What I’m hearing is that there is no danger of London losing its status as Europe’s premier financial centre.”
John Redwood, a former Tory cabinet minister, said: “I think people are exaggerating the risks here. I don’t think the estimates of job losses are well based; I don’t think people can back them up — they are unduly pessimistic.”
Many of the predicted job losses revolve around fears that London could be stripped of clearing euro-denominated swaps in what is currently a multibillion pound market.
Mr Redwood admitted this had been a “major fear” in some quarters but said it was unlikely that Europe would strip both London and New York of the ability to handle such deals.
“If they want to be protectionist, they could say to banks under the ECB ‘you’re not allowed to clear euros in London or New York’ but they will be the losers because they won’t have access to some of the most liquid markets in London,” he said.
Gerard Lyons, former chief economics adviser to Boris Johnson at City Hall, said he was not convinced there would be net job losses. “Firms may have to make some changes but it would be wrong to talk about them moving huge amounts of stuff offshore.”
Lloyd’s of London, for example, may have to move part of its operations to the EU — but only with the loss of a few dozen jobs at the 328-year-old insurance market.
“I wouldn’t call it crying wolf, it just reflects the City not expecting a Leave vote and not being prepared. When you have been in the EU for so long the uncertainty does not help,” said Mr Lyons, who is now an adviser at the Policy Exchange think-tank.
One City adviser said banks still had the “nuclear option” of changing their domicile and depriving the exchequer of huge tax revenues. But he was not aware of any considering such a move.
Many of the big banks already have sufficient subsidiary operations in Frankfurt, Paris, Dublin or elsewhere in the EU, through which pan-European business could be rerouted. Most asset managers, likewise, have fund distribution arms in Luxembourg or Dublin.
Few financial services groups want to permanently change the way they operate before they have a better idea of whether it will be necessary. The government’s Brexit department and Treasury have asked City firms to communicate when they expect to take “irreversible decisions”. Banks say this equates to the point at which they would shift clients from a London-based entity to one in a rival EU financial centre.
US banks would face the most disruption from a “hard” Brexit, as they would have to reroute large volumes of business through European subsidiaries — a laborious process that they say would take far longer to implement than the two-year window for Brexit negotiations.
For some big US banks, the fallback plan is to continue with “back-to-back” transactions where a client is based and execute a mirror trade in London to reconcile the books in the British capital. Such an arrangement would be inefficient in the long term, but may be necessary if there is no transitional period.
Some Brexiters have raised the idea of “brass-plate” subsidiaries in an alternative EU hub — operations that would house few staff and merely act as conduit of business back to London.
But few believe this is a viable option, given the expectation that eurozone regulators would require real business to be transacted on the ground, with risk and control functions also appended locally.
3 January 2017
The London Stock Exchange said Tuesday it has agreed to offload the French arm of clearing house LCH to European rival Euronext as it seeks a merger with Deutsche Boerse.
LSE Group said a cash deal worth 510 million euros ($534 million) had been struck with Euronext, adding in a statement that the proposed sale “would be subject to review and approval by the European Commission in connection with the recommended merger of LSEG and Deutsche Boerse”.
LSE, which operates also the Milan stock exchange, had proposed the sale of the French division as an attempt to address EU competitions over a tie-up with the Frankfurt stock exchange.
Deep concerns over competition helped scupper two earlier attempts by the companies to merge, in 2000 and 2005.
Clearing houses are meanwhile an increasingly vital part of financial markets, insuring buyers and sellers against their counterparts pulling out of a deal in exchange for cash guarantees.
London hosts roughly 1.3 trillion euros of euro clearing transactions every year, a status that is now in danger with the British vote to leave the EU.
The LSE and Deutsche Boerse merger would create a financial markets behemoth competing with the likes of the Chicago exchange and ICE in the United States, as well as the Hong Kong stock exchange in Asia.
The planned merger, which has hit turbulence after last year’s shock decision by Britain to quit the European Union, would ring up one of the globe’s biggest groups for stock listings and market data, tying the Frankfurt-dominated eurozone to a post-Brexit London.
The proposed deal has drawn sharp rebukes from France, Belgium, Portugal and the Netherlands, fearful for their own stock exchanges, owned by Euronext.
Deutsche Boerse operates the Frankfurt exchange, as well as the Luxembourg-based clearing house Clearstream and the derivatives platform Eurex.
By Tim Wallace
5 January 2017
Economic growth accelerated in the final month of 2016, as companies across Britain’s powerful services sector reported rising demand in December.
Growth in the sector rose to its highest level in 17 months, according to IHS Markit’s purchasing managers’ index (PMI), as companies recovered from the blow to confidence inflicted by the Brexit vote.
Businesses had feared the referendum result would harm the economy but, so far, there is little evidence of any widespread slowdown.
The services PMI rose to 56.2, up from 55.2 in November. Any score above 50 indicates rising business activity, while a score below 50 shows output falling.
In July the index dropped to 47.4, so December’s figure represents a major turnaround from the gloom of the summer.
The services industry makes up almost 80pc of the UK economy, and the positive figures follow healthy numbers for companies in the manufacturing and construction sectors, too.
“A buoyant service sector adds to signs that the UK economy continues to defy widely held expectations of a Brexit-driven slowdown,” said Chris Williamson, IHS Markit’s chief business economist.
“Collectively, the PMI surveys point to the economy growing by 0.5pc in the fourth quarter, with growth accelerating to a 17-month high at the year end.”
As a result companies are keen to keep on hiring, which may indicate that the halt in employment growth in the most recent official figures was a pause rather than an end to the recent spell of labour market growth.
One potential worry, however, is creeping inflation. Oil prices are rising and improved growth in countries such as China and the US is pushing up the cost of other commodities, while Britain also faces the prospect of higher import costs because the value of the pound has fallen.
Price pressures on services firms rose in December at the fastest pace for five years, the PMI survey found, threatening to push up prices for customers.
Food, fuel, IT and wage costs were all noted by companies as expenses that rose particularly sharply during the month.
“A moderation in growth in 2017 seems likely as rising inflation eats into households’ real income growth,” said Scott Bowman at Capital Economics.
“Nonetheless, the support provided to activity from a lower pound and rock-bottom interest rates should prevent growth from slowing too sharply. Overall, our forecast is for GDP growth to ease from around 2pc in 2016 to about 1.5pc in 2017.”