I remember the reaction to the referendum result when it was announced in 2016. I was at the Glastonbury Festival. The whole issue has sparked fierce debate, divided loyalties and, indeed, ended some friendships. With deadline day now behind us most, I believe, just wanted to get it over and done with. There are far more pressing and immediate worries threatening the health of the nation.
With travel virtually banned, perhaps the full impact of Brexit on us as individuals has been contained for now, while our minds are all focused on the real tragedy of COVID-19. I suspect it will be the outcome of this crisis that will define the mood of the nation rather than Brexit.
The fact we have an agreement that retains tariff-free trading is as important as it is a relief. Markets don’t like uncertainty, so at least now we know where we stand. This was reflected in the improvement in the exchange rate – although there’s a long way to go for the key sterling/dollar rate to recover to its pre-referendum level. Currency hedging is expensive and volatility makes it more so. As former Bank of England governor Mark Carney said, we are dependent on “the kindness of strangers”. The inward investment the country has enjoyed is a key component of its prosperity. In fact, the UK is among the highest – if not the highest – receivers of foreign capital of any country in the OECD.
The UK property market has long been a favourite destination for foreign capital. More recent trading evidence points to as much as 50% or more of transactions in the capital being foreign trades, although overall volumes fell. Noticeably, France and Germany received a large influx of overseas real estate investment.
Even during the pandemic, foreign investors have supported a weakened real estate investment market – both commercial and residential. Foreign capital and corporates retain a huge influence in London, and in many major UK cities. They will no doubt play a part in the government’s “levelling up” agenda, although there is a tension here as the EU seeks to win more business and repatriate euro-based trading into its domestic markets.
The things we do not know about Brexit do, however, leave some continuing doubts over market positioning – particularly in London. As yet, we do not have clarity on the impact of the trade deal on the service sector and, not least, financial services. A resolution here is needed to provide certainty in a key part of the country’s economy. We have seen several financial institutions move trading positions to within the EU. London still has an advantage in finance and insurance markets and, in a global trading environment, that dominance is key.
Perhaps the increasing ability of the workforce to perform at distance, as demonstrated in these COVID-19 months, will create greater spread of workplace options and challenge the clustering that has made the UK a key international trading post. This must be a concern in the capital, which has been a magnet to making the UK the third-largest real estate market in the world. Anybody who has been in the City of London during this crisis will know how empty it is. In the long term, this could end up having a more destructive impact than Brexit.
The UK remains a welcoming place for business. The ability for it to now make trade agreements with other key markets will hopefully attract new investment, helped by the country’s trading position with its biggest and most proximate market – the EU. While COVID-19 is with us, we cannot forget the UK’s importance as a destination for overseas students, and as a hub for travel and tourism. These are all key elements of the economy, and this openness remains absolutely key to future prosperity.
Some international investors and corporates might have smaller teams locally in places such as Frankfurt, Paris and Amsterdam, but ease of access, finance and city infrastructure, time zones and language are often cited as the reason most prefer to manage transactions across the continent from a European base in London. It is possible, given the separation and the growth of interest in Europe, that more will look to increase their presence in these regional markets due to a need to be more ‘local’. There is still much to play for.
For our profession, the new restrictions on travel for work in Europe may impinge on activities – when we can travel again – but the UK’s historic reputation as the respected home of the chartered surveyor, and some of the largest advisory practices in the world, was forged in a world before the existence of the EU.