London City Stutters As Brexit Hits Productivity And Costs UK Billions

Since the 2016 referendum, the City of London has wrestled with the repercussions of Brexit, witnessing its position among Europe’s financial capitals dented and its renowned productivity engine flagging. As Frankfurt, Madrid, Milan and Paris have flourished, London’s dominance has been eroded, with hundreds of financial firms moving key operations and over £1 trillion in assets to EU hubs hoping to sidestep the post-Brexit fall-out.

This migration of talent and money has left noticeable scars. The Chancellor, Rachel Reeves, now faces a significant black hole in the country’s public finances, aggravated by lacklustre productivity gains. Recently revised estimates from the Office for Budget Responsibility (OBR) suggest trend productivity growth could drop to just 0.9 per cent – a substantial step down with a projected £21 billion increase in government borrowing by the decade’s end.

Investment, particularly in the City’s financial sector, once a bedrock of UK output growth, has stagnated. Sectors traditionally linked with EU trade – including British car manufacturing, chemicals, pharmaceuticals and food – have seen exports lag behind G7 peers since the EU transition ended in 2020. While services have performed better, financial services have lost ground as firms lose straightforward access to EU markets, and London’s global share has tumbled from 21 per cent in 2010 to 15 per cent.

What complicates matters further are the inefficiencies produced by duplicating roles and dealing with additional regulatory hurdles across multiple European centres. Banks like Barclays, Bank of America and HSBC have shifted significant assets and staff to cities such as Dublin, Paris and Frankfurt, diminishing London’s historic clout. The fragmentation has, in effect, made the sector less efficient, compounding the UK’s wider productivity malaise.

For workers, the implications are stark. Real wage growth, once robust during years of rising productivity, has flatlined since the financial crisis of 2008. The hope is that a new wave of innovation and “Leeds reforms” championed by the Chancellor may reignite the City’s prospects, with positive signals coming from fintech ventures like Hyperlayer, which recently completed a significant funding round. Still, uncertainty persists over whether UK-born successes will mature domestically or decamp to larger, overseas markets.

Labour’s challenge is now clear: revitalise London’s global standing and strengthen EU relations without rejoining the single market or customs union, all while tackling the deep-seated productivity puzzle that gnaws at the heart of the British economy. The answer may well determine whether the City remains the UK’s critical tax and growth driver or continues its drift in the wake of Brexit turbulence.