London’s financial services industry has been badly hit by continued uncertainty over just how the UK will leave the EU. Silvia Pavoni reports.

As the Brexit deadline approaches, uncertainty over the UK’s future relations with EU27 countries and access to the European single market has increased rather than diminished. As The Banker went to press, there was still no agreement on how the UK would choose to leave the European bloc.

Ongoing uncertainty has been jangling nerves at many financial services firms in the UK, despite early preparations for a number of worst-case scenarios. It has also muted foreign direct investors’ enthusiasm for the UK’s – and Europe’s – dominant financial centre. Flows of foreign direct investment (FDI) into and out of London have been tapering off.

In the year to the end of November 2018, London received much less FDI into its financial services sector than it did over the previous 12 months, according to estimates by greenfield investment monitor fDi Intelligence. The majority of this came from New York-based firms, with a total $135.3m capital expenditure, a decline of nearly one-fifth from the previous year.

Hong Kong, Frankfurt and Singapore, previously among the top five investors into London, have all disappeared from the latest top 10 table, and have been replaced by more modest investments from Warsaw and other centres. Although still the third largest investor in the UK capital’s financial centre, Tokyo has cut its FDI expenditure in London, like New York, by one-fifth, to $36.4m.

FDI appetite on the part of London-based firms has reduced even more sharply. Outward flows from the UK centre to its top 10 destinations have fallen by more than 40%. Shanghai and Singapore top the most recent table and maintain their popularity from their previous third and second place, respectively.

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