The ghost of Brexit past is rattling chains in the City

The ghost of Christmas present (Omicron) might be the more immediate threat but the financial calamity that is Brexit is always lurking in the background, writes James Moore

This grim Dickensian Christmas is blighting Britain’s coffers (PA)

Brexit has rather become the ghost of Christmas past. An old horror that makes you shiver a bit when you start to ascend the stairs of your parents’ house at Christmas and that middle stair creaks alarmingly. Oh god, it might still be there in the attic!

It has, of course, assumed that status because the Ghost of Christmas present, Covid, with its habit of unleashing nasty new variants, is so much more immediately threatening.

The economic are effects are blindingly obvious. UK hospitality has just issued another anguished plea for help, complaining of “trading levels so poor that the need for proportionate government support is … urgently necessary if businesses, jobs and livelihoods are to be secured”.

The great cancellation is having a devastating impact, but the governing party seems much more interested in arguing with itself than it does in responding.

That doesn’t, however, mean the ghost of Christmas past has gone away. Au contraire, as EY’s regular Brexit tracker shows. The vampire is perfectly capable of jangling its chains up in the attic, and of slipping free to draw blood.

The tacker shows that some 44 per cent (97 out of 222) of financial services firms have either moved or plan to move some UK operations and/or staff to the EU since the referendum, a small but significant increase from the 41 per cent in January 2020. This figure is only going to go one way.

The Ghost of Christmas present (Omicron) has slowed its progress somewhat. Over the last year, a number of the largest investment banks located in the UK have actually revised the number of staff that will be relocated to the EU, taking the current number of Brexit-related job move announcements to just under 7,400, down from 7,600 in December 2020.

But even so, that’s still a very big number. Dublin and Luxembourg, the most popular HQ destinations for financial firms, along with Paris, which has been hooking the most people, continue to welcome refugees with open arms.

Assets have also been flowing out of the UK. EY puts the figure £1.3 trillion, which has remained broadly flat throughout this year, but is still a dizzyingly large number.

EU regulators have, meanwhile, kept up the pressure on firms to complete headcount and operational moves that have been delayed by the pandemic.

Brexit-related activity within the UK financial services market – covering the relocation of staff and/or operations, the establishment of new EU hubs or offices, and the flow of assets to Europe – has nonetheless been relatively muted over 2021. Small wonder.

But Omar Ali, EMEIA financial services leader at EY, says that he expects the moves to pick up once omicron’s sharp edge has been dulled, whenever that may be.

“Depending on the trajectory of the Omicron variant and its impact on international travel in the short term, delayed moves should pick up over the coming year, not least due to ongoing pressure from EU regulators,” he says.

“For many financial services firms, we are still far from being fully ‘post-Brexit’. The Memorandum of Understanding for the sector remains unsigned, and there is not yet a definitive outcome on equivalence.” Don’t get your hopes up for that.

All this is proof positive, if that were indeed needed, that Brexit is not “done”, just as it is not done over Northern Ireland, with foreign secretary Liz Truss receiving the hospital pass after David Frost had a right-wing hissy fit over Covid restrictions and flounced out over the weekend.

The difference between the Brexit ghost of Christmas past, which is really just another ghost of Christmas present, and the Covid ghost of Christmas present, is that is possible to recover from the latter, as the UK economy was doing before Omicron emerged.

Recovering from Brexit is going to prove a lot harder. Those jobs, and those assets will not be coming back. Long term, its impact will be the bigger one. Per the Office for Budgetary Responsibility’s autumn budget report Brexit is set to cost per cent of GDP. It’s 2 per cent for Covid.

Rishi Sunak’s solution to the conundrum, so far as the City goes, was announced earlier this year. It’s a deregulation drive. Based on the financial centre’s past form – recall that it nearly cratered the economy during the financial crisis – that could yet prove to be Britain’s Brexit Ghost of Christmas future.