Brexit and the City: taking London’s financial pulse

London’s financial center has expanded beyond its original heartland in the City of London to the skyscrapers of Canary Wharf in the east, above, and plush townhouses in Mayfair to the west. (Reuters)
Updated 20 November 2017
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Brexit and the City: taking London’s financial pulse

LONDON: Will Britain’s decision to leave the EU in 2019 damage one of its most successful industries?
The financial services sector, which accounts for about 12 percent of Britain’s economic output and pays more tax than any other industry, potentially has a lot to lose from the end of unfettered access to the EU’s post-Brexit market of 440 million people.
Known for centuries as “the City,” London’s financial center has expanded beyond its original heartland in the City of London to the skyscrapers of Canary Wharf in the east and plush townhouses in Mayfair to the west. The British capital dominates global foreign exchange, and features international bond and fund management operations and more banks than any other hub.
But it is particularly vulnerable to a Brexit shock, because about a third of the transactions which take place on its exchanges and in its trading rooms involve clients in the EU.
This has led some politicians and economists to predict London will lose its pre-eminence as a financial center after Brexit, although supporters of leaving the EU say Britain will benefit over the long term by being able to set its own rules.
Reuters has created a tracker to monitor six indicators to help assess the fortunes of the City, taking a regular check on its pulse through public transport usage, bar and restaurant openings, commercial property prices and jobs.
“At the beginning it is difficult to assess the true impact of what is happening because it is quite a confused picture,” said Tom Kirchmaier, a professor who focuses on banking at the London School of Economics. “These proxies will help you piece together what is going on.”
Almost 17 months after Britons voted to leave the European Union, our indicators suggest signs of a slowdown, but no transformative decline.
Commercial property Reuters obtained property data from Savills and Knight Frank, two of the biggest real estate firms in Britain. Savills says it calculates the value of property based on all-known property deals within the City of London area. Knight Frank’s data comes from landlords, developers and agents.
According to Savills, commercial property prices in the City of London have dropped more since the Brexit vote in June 2016 than at any point since 2009, the last year of the global financial crisis.
The price of renting real estate in the City of London district has fallen by about 5 percent since last year, dropping to 73.4 pounds per square foot at the end of September, from 77.6 pounds, Savills says.
However, leasing activity in the City of London was 17 percent above the long term average in the first three quarters of 2017, Mat Oakley, Savills’ head of European commercial research, said.
In Canary Wharf, prices are unchanged compared with last year, Knight Frank says.
Oakley at Savills says that for the first time since the global financial crisis the finance and banking sector is “out there looking for new office space” in the former docklands.
Going Underground Every weekday more than 200,000 journeys are recorded at the two main underground stations — Bank and Monument — that serve the City, making the stations among London’s busiest.
To find the number of people using these two stations and the underground station at Canary Wharf, Reuters filed Freedom of Information Act requests to Transport for London, which runs public transport.
The number of people using Bank and Monument stations is on course for its first fall since the final year of the global financial crisis, Transport for London data shows.
Travelers going in and out of Bank and Monument fell by 2.7 percent in the first eight months of 2017 compared with 2016. This follows an annual increase each year since 2009.
In Canary Wharf, the number of people using the station continues to rise. But the pace has slowed and in the first seven months of this year grew at its second slowest since 2009, Transport for London data shows.
A spokesman for Transport for London said a multi-year project to expand the capacity at Bank station began at the end of 2015, resulting in the occasional closure of some escalators, but this has not resulted in any reduction in the number of trains running.
Reuters also filed a Freedom of Information Act request to the City of London Corporation to find the number of new premises who have applied for licenses to sell alcohol and license renewals this year.
So far, Brexit seems to be having no impact here. The number of venues, such as bars and restaurants, applying for new licenses to sell alcohol in the City of London in the first eight months of 2017 is at a record high, data from the municipal local authority that runs the district shows.
Officials at the City of London Corporation say this is partly because the area’s night life has diversified in recent years, and no longer just caters to finance workers.
“We have a safe City with an expanding night life,” the Corporation said in a statement.
London City Airport The number of people using London City Airport, favored by executives for flights to European cities and beyond, faces its slowest increase in five years, according to its publicly available passenger figures.
The airport, close to Canary Wharf’s financial district, had an increase of 0.9 percent in passengers in the first six months of this year. That compares with an average annual 10 percent increase in the previous four years.
London City Airport said that it has enjoyed record growth since 2012, but its capacity is being constrained at peak times and it is looking to expand.
Hiring numbers
The number of available jobs in London’s financial services industry this year has fallen the most in five years, recruitment agency Morgan McKinley says.
Morgan McKinley focuses on hiring staff in the finance industry. It says it bases its number on the overall volume of mandates it receives to find jobs; it then applies a multiplier based on its market share of London’s finance industry.
The recruiter found 51,922 new financial services jobs were created in the first seven months of this year, a 10 percent drop compared with the same period last year. This was the lowest number of jobs available since 2012.
“Businesses are naturally hesitant to plan and execute growth hires due to the uncertainty around Brexit,” said Hakan Enver, a director at Morgan McKinley.
Jobs leaving London? Around 10,000 finance jobs will be shifted out of Britain or created overseas in the next few years if the UK is denied access to Europe’s single market, according to a Reuters survey published in September of firms employing the bulk of workers in international finance.
Sam Woods, a deputy governor of the Bank of England who has reviewed the contingency plans of more than 400 banks and financial firms, said he agreed with the findings of the survey.
The findings suggest that the first wave of job losses from Brexit may be at the lower end of estimates by industry lobby groups and firms, which could mean London will keep its place as the continent’s top finance center, at least in the short term.
“Your survey seemed to be about right,” Woods said.


Asia air cargo market gets e-commerce boost as US-China trade war yet to bite

Updated 20 min 19 sec ago
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Asia air cargo market gets e-commerce boost as US-China trade war yet to bite

  • E-commerce is growing at pace in populous Asia, driven by Chinese behemoth Alibaba Group and rival JD.com
  • Boeing on Monday forecast air cargo traffic would double over the next 20 years
JEJU, South Korea: Strong e-commerce demand is fueling Asia’s air freight market, with the US-China trade war having minimal negative impact so far and in some cases even boosting shipments, industry executives said on Friday.
E-commerce is growing at pace in populous Asia, driven by Chinese behemoth Alibaba Group and rival JD.com, as well as others such as Japan’s Rakuten, sponsor of Spanish soccer giants FC Barcelona.
But the flow of goods has been threatened this year by the United States imposing import tariffs on billions of dollars worth of Chinese goods to redress what it regards as unfair trade relations — with China’s government responding in kind.
“I think right now we are probably going to see a pretty strong fourth quarter,” Randy Tinseth, Boeing Co’s vice president for commercial airplane marketing, said on the sidelines of an industry conference.
“The economy today has been very, very strong. Frankly in anticipation of this geopolitical situation I think people are just going out and moving (cargo) quickly.”
Asia-Pacific air cargo volume rose 4.8 percent in January-August, showed data from the Association of Asia Pacific Airlines (AAPA). That was lower than last year’s 9.8 percent but came off a higher comparison base at a time of record shipments, said AAPA Director-General Andrew Herdman.
“Given this short-term effect of scrambling to meet deadlines for tariff imposition and so on we are seeing pockets – lanes and channels – where demand is stronger than expected. For the next several months the cargo picture remains relatively robust. The question is what will the outlook for next year be.”
Asian airlines have an outsized role in air freight, accounting for nearly 40 percent of the global market as the region is a major manufacturing hub and e-commerce is growing.
“E-commerce is changing the way people are buying stuff, especially in countries such as Indonesia and the Philippines,” said Jean-Francois Laval, Airbus executive vice president, Asia sales. “It is coming from China, from Korea, it is coming from other parts of the region. You need a huge amount of cargo space.”
Boeing on Monday forecast air cargo traffic would double over the next 20 years, growing at an average rate of 4.2 percent a year.
To meet that demand, the aircraft manufacturer expects the world freighter fleet to expand over 70 percent to 3,260 planes. Around half of air cargo is carried in the bellies of passenger jets, with the remainder flown on dedicated freighters.
Some large Asian cargo carriers including Cathay Pacific Airways and Korean Air Lines rely on freight for around a quarter of revenue.
“Last year the cargo market was extremely hot. In 2018 it still grew. The trade tensions in the world will have some effects but we haven’t seen it yet. I see constraints coming in a very short time. However, we are preparing for it,” Korean Air President Walter Cho told reporters on Friday.
“Anything from the US to China and vice versa is going to be affected. We are looking at alternate markets to China and the US as well.”
Japan Airlines President Yuji Akasaka said the trade war had made no change to the cargo market to date and he only expected an impact if “extremes” occurred.
“If it does happen it may affect us in the future but as of right now we haven’t seen it and hope it will cool down and go back to normal,” he said through a translator.
In the short term, trade war impact has not been too visible because initial tariffs were on items not typically transported by air such as metals, AAPA’s Herdman said. That is starting to change, however, as duties apply to more goods.
“I heard one example ... Seafood from the US to China is subject to retaliatory tariffs, so demand in China is down. Guess what? Demand for Canadian seafood is doing just fine.”