MIPIM UK 2016: There will be some downsizing in the capital in the wake of Brexit, Sir Howard Davies, chairman of Royal Bank of Scotland told an audience at MIPIM UK this morning.
Davies said: “Banks will move the balance of activity that they undertake here to other European cities as a hedging strategy, just in case they find barriers put up against them here.”
Many corporates have become increasingly concerned that Brexit will reduce their ability to negotiate access to the EU’s financial markets.
According to analysis from DealX, 1,912 firms rely on using “passporting” to conduct deals around Europe. If that business becomes restricted, they might have to move at least part of their business out of the UK. Collectively they occupy 13.9m sq ft in the City, and 26.5m sq ft around the key London office markets – equivalent to 26 Cheesegraters.
Davies said central London would be the most sensitive to a “hard Brexit” as “quite a lot of firms were thinking about moving people out at the moment”.
Turning to the economy, Davies believed that the UK would become less productive post-Brexit. He said forecasts that the UK would experience growth of 2.1% this year were not meaningful as Brexit had not happened yet.
“This is a difficult environment for the financial sector,” said Davies. “Banks borrow short to lend long and if the interest rate curve is flat, that trick doesn’t work terribly well.”
He added: “We are in a position where growth is modest but there are quite a lot of risks on the horizon and not much that the monetary authorities can do if growth slips. That is not a great place to be.”
Despite that, Davies said that the activity in the commercial property market had not yet been hit too hard. Although RBS saw some falling capital values in June and July, down by 3.5%, this was, he said, driven largely by large lots being sold by the open-ended retail funds. The median fall was just 1.7%.
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