Digital industries helping London weather Brexit uncertainty

There is a perception held by some that London’s economy must be suffering as a result of the move towards Brexit; but this is not in evidence in the statistics.

Employment is rising and unemployment is falling in the capital, while inward investment continues. In the year to October 2017, 128,000 new jobs were created in London, according to ONS. UK GDP growth was sluggish for much of 2017, but we did not see the post-referendum recession many feared. In fact, the growth figures stayed safely in the black.

How do we explain this gap between perceptions that Brexit should be dampening the economy, and statistical proof of growth? There are three key points to consider, which explain why London’s growth is holding up better than expected, and will continue to do so in 2018.

1. London is not seeing large numbers of jobs leave as a result of the vote to leave the EU

Most major banks and insurers have announced plans to move a small number of jobs (usually in the low hundreds) to offices in the European Union in order to continue serving EU-based clients post-Brexit. The number of jobs has been much lower than previously expected. 

A survey by Reuters of over 120 UK and international banks and insurers suggested 10,000 jobs could relocate as a result of Brexit. The office space occupied by 10,000 workers is the equivalent of 0.5% of total office stock in Central London – a manageable figure for the market to absorb. Experian Economics is forecasting 49,000 jobs will be created in office-based industries in London over the next two years – more than enough to compensate for the job losses predicted.

2. London’s economy has not been led by finance for some time now

Government figures show the number of people in London employed in the technology, media and telecoms (TMT) sector overtook those working in finance and insurance in 2013, thanks to rapid expansion by major digital firms.

The TMT sector has continued to recruit and expand in London since the referendum to leave the EU, because most tech firms operate in a borderless world that is less affected by Brexit. Take-up of office space by TMT firms in Central London was 25% above the long-term average level in 2017. 

Tighter immigration rules will be a challenge for the TMT sector. However, we expect the government post-Brexit to look favourably on visa applications from highly skilled and well-paid tech workers.

3. That interest rates in the UK are rising again is reason for confidence in the outlook 

The Bank of England Monetary Policy Committee (MPC) in November 2017 raised the UK base rate because it has confidence the economy can cope with the increase. Unlike the Eurozone, which is still pursuing Quantitative Easing, the UK is now in a position to move away from emergency measures brought in during the global financial crisis. The MPC has indicated that going forwards rates will rise very gradually, which should limit the impact on debtors. 

In particular, the Bank of England views the tight conditions in the employment market as proof that the UK economy is strong enough to handle higher rates. 

Our outlook is for London to remain a leading global business hub, but with TMT industries leading growth. Finance is adapting to new realities, but the job losses involved are manageable in number.

London is the UK region best positioned to shrug off the Brexit uncertainty and benefit from the upturn currently underway in the global economy. This bodes well for demand for Central London offices in 2018.