UK’s attractiveness to overseas investors is being challenged by Brexit
The cabinet’s big hitters have been accruing air miles this week as the job of selling the UK proceeds apace.
The Prime Minister is in Saudi Arabia promoting long-term business relationships, while the Chancellor is in India, looking for co-operation over energy, fintech and financial regulation.
The International Trade Secretary has been in Manila for talks on trade with the Philippines and Greg Clark, the Business Secretary, has been banging the drum for Britain in Seoul.
There is something disturbing about this frantic international schmoozing to replace the market on our doorstep with ones thousands of miles away.
While on her travels the Prime Minister even appeared to accept that a key part of the cabinet’s Brexit trade strategy was impossible to achieve. Only a week since stating the opposite, she conceded that the formal conclusion of a trade deal with the EU would have to take place after the Britain leaves the union.
The sales mission may be enthusiastic but damage has already been done to Britain’s reputation as an attractive place in which to invest, according to accountants KPMG.
The UK has slipped from first to fifth place in the rankings of countries according to 60 non-UK companies polled. Foreign businesses were upset about possible disruptions in trade deals and tariffs, an end to the UK’s access to the single market and the mobility of skilled labour.
On the basis of these findings, KPMG suggests that there could shortly be an outflow of foreign direct investment from the country. As our ministers chase new sources of money around the world, it could be slipping out the back door at home.
In particular, KPMG points out a disparity between what those companies that are already based here think of the UK’s attractiveness, and what those who are based elsewhere think. The number of businesses seeking to move functions into the UK has declined materially, the accountants say.
Historically, the UK’s attractiveness to overseas investors (like the Saudis, the Malaysians and the Koreans) has been its status as a trading nation, stable politics and its tax system but Brexit is challenging this.
The latest figures on the economy, out on Wednesday, showed an unexpected rally in the services sector, which also helped the pound to strengthen.
Despite beating forecasts, March’s figures do include some worrying signs. For starters, companies in the service sector created fewer new jobs in February and hiring was at its slowest pace since August 2016. Also, firms raised their prices at their fastest pace in eight and a half years.
Within the sector, the worst performers were industries like hair dressers, restaurants, hotels and gyms – suggesting that consumers are under pressure.
The rebound in the services sector in March is also unlikely to be enough to outweigh a weaker past two months. Growth for the first quarter is likely to be sharply lower than that at the same point last year.
At least the financial services sector held up, something for which the Chancellor will be grateful as evidence emerged that many bankers born overseas are preparing to leave London – so sick are they of the uncertainty that Brexit is bringing to their careers and personal lives.
Staff at Citigroup, Goldman Sachs, HSBC and Societe Generale are asking to be moved back to offices in mainland Europe. Dublin-based head hunters are also reporting a spike in inquiries.
Perhaps a greater threat than a brain drain is the damage that an angry EU might inflict on the City. Manfred Weber, leader of the Christian Democrats in the European parliament, said that all financial business denominated in euros should be moved from London to the European Union after Brexit, threatening London’s huge euro-clearing business.
The UK government fought a four-year battle against a policy by the European Central Bank that would have required clearing houses with significant euro-denominated business to be based in the Eurozone. Such hard-won victories can be easily lost in the new environment, where the stakes are even bigger.