The US Became Britain’s Biggest Export for Finance Services in the run-up to Brexit
Amidst all the woes and challenges presented by the pandemic, the first half of 2021 saw the banking sector in the United Kingdom thriving merrily to the tune of £10.3 trillion, making it the most successful in Europe and third biggest on a global scale. The coronavirus has had many effects worldwide, including highlighting the resilience of the British financial sector. Experts are pleasantly surprised to see the financial sector respond positively to the pandemic.
Last year, fintech played a significant role in the British economy by bringing in £6.6 billion in revenue while creating 76,500 jobs. Generally, the UK’s financial services sector is enjoying a healthy trade surplus of £45.8 billion, meaning that services rendered by these businesses are in high demand beyond the UK’s borders.
Britain’s largest trading partner used to be the EU. But then, in December 2020, the result of the 2016 referendum was a departure from the Union. Brexit meant that British companies no longer had full access to the European market.
Before December 2020, 35% of British financial service exports went to the European Union. Since then, though, the percentage has decreased. Some say this drop highlights the differing value systems that govern the UK and the EU. The latter is primarily concerned with developing an internally consistent and coherent capital market. For the UK, Brexit presents an opportunity to regain sovereignty over its financial regulatory procedures.
The future of Britain’s trading relationship with the EU is likely to remain divided because of Brexit. Equivalence is an essential concept for the EU, and it has failed to reach a common understanding of fiscal equivalence with the UK. Had both parties successfully arrived at a memorandum of understanding, the financial institutions from the UK would have had free and easy access to the European market.
But as things are right now, financial services providers from the UK do not have the “automatic right” to operate in the EU that they once did. Now providers have to deal with the tedious task of seeking compliance with individual countries before doing business in the Eurozone.
Despite Brexit, activity in the British financial sector remains strong. London has the greatest global share of cross-border bank loans. As a hub of industrious, financial hustle-and-bustle, this comes as no surprise. The London hub is also doing very well in the global trade of currencies, handling double the amount of dollars that the US does. Adding to the attractiveness and strengths of the hub is the fact that London is ideally placed in a geographical sense as it lies in a friendlier time zone than its Asian counterparts.
Diminished trade with the European Union has had additional positive effects for British financial services providers. These businesses have found a modicum of success with non-EU countries. £40 billion worth of financial services exports went to countries outside the European Union in 2020. Recently, in the first half of 2021, the UK exported £19 billion worth of financial services – including insurance and pension services, – to the United States.
In 2021, the attention-grabbing trend is the burgeoning trade relationship between the UK and the US. It outshines the trade relations that the UK used to have with the European Union. According to the Office for National Statistics, £15 billion worth of financial services exports went to the US in Q1 and Q2 of this year.
Apart from the obvious effects of Brexit, the rise in British trade with the Americans stems from an additional source. The American economy’s robust response to the pandemic allowed it to recover at a swifter rate than most global economies. The country’s response to COVID-19 set it up as an ideal trading partner.
The increased appetite for British financial services has analysts convinced that American businesses are growing increasingly curious about the fiscal landscape in the UK.
All this activity bodes well for the British economy, but it is by no means time to rest on its laurels. Experts appear to be aware of this fact, making the right legislative moves to ensure that the UK remains competitive given the success of in light of established fiscal leaders like New York.
There is no going back to the Eurozone for the UK. The 2016 referendum has only highlighted the fundamentally different fiscal philosophies the two regions hold. The EU is confidently striding forward and engaging in the creation of regulation that will make it far more autonomous than it has been in the past. This will decrease the ease with which the UK – or any other nation – can adjust its economy to adapt to the new requirements.
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