Financial London: A look at The City’s Economic Engine

London’s finance leaders are reassessing public and private business relationships to overcome economic stagnation. Experts are looking closer at those once-ignored industries and enterprises and the ironically-named unicorns that have significantly impacted all aspects of our lives.

Take the construction industry, for instance. Once perceived as a gathering of greedy real estate agents and oblivious day workers, it is now upheld as a trusted indicator of London’s office space necessities to support economic growth.

Or think about the once-criticised online gambling industry, instead, with its free spins no deposit offers and artful engagement strategies. There’s a lot more than marketing at stake. These platforms are powered by the latest software and cutting-edge data analytics. Casinos manage impressive budgets and follow the latest cybersecurity protocols to protect their customers’ money.

Moreover, the gambling industry pays the highest possible taxes and keeps making a profit. Isn’t such financial proficiency possible due to excellent business skills and an unprecedented understanding of consumers’ wishes and needs?

Regulators are now looking up to the mix of software, technology and legal tweaks that are keeping millions hooked and money rolling. Those ignored industries are now becoming financial models worth exploring. How come these businesses are thriving against all odds?

Financial London’s Role in the Global Economy

The latest Global Financial Centres Index (GFCI 34), published on 28 September 2023, shows that London remains a global finance hub. It maintains its position as the second financial centre in the world after making little progress against NY, the leader.

London’s financial sector encompasses 1 in 13 jobs in the country (see the City’s Vision for Economic Growth report). Despite its diminishing role in the last 15 years, there are hopes of recovery, and success stories, together with courageous plans, keep coming up. Success Stories

Story #1: The financial and professional services sector (FPS) provides jobs and makes high tax contributions – says Christopher Hayward, Policy Chairman of the City of London Corporation, in Vision.

• 2.5m jobs across the UK, of which ⅓ are inside London
• £100bn in tax expenses each year

Story #2: FPS boosts the UK’s economic output and makes it the most globally connected banking hub and the most prominent international debt issuer, according to the City of London’s State of the Sector 2023 Report.

Story #3: Financial London is home to various industries under the FPS sector, with an infrastructure for inter-connected services and markets (as in TheCityUK’s Key facts about the UK as an international financial centre 2022). London-based firms dominate the export of pro services and talent.

London’s Role in Euro Transactions

There have been concerns about the UK’s role in euro foreign exchange trading following Brexit. Still, the 2022 BIS Triennial Survey confirmed London’s leading position, but EU and UK legislation changes are expected. The analysis follows four criteria:

1. trading of interest rate derivatives (IRD) – London has lost position in euro & dollar IRD 
2. foreign exchange (FX) – London remains dominant in over-the-counter (OTC) trading of FX and euro IRD
3. international banking – London retains its pre-eminence
4. bond underwriting – London possibly lost centrality

The UK’s Attractivity for Outside Investors

EY’s 2023 UK Attractiveness Survey, measuring foreign investment intentions, shows the UK retaining second place in Europe, between France and Germany. Nevertheless, the US picked Albion as its primary funds recipient in 2022. 

The most funded sectors have been the digital, finances, and business. Digital projects in London nearly halved in the last couple of years. Still, the City remains the country’s economic engine, and investments in the UK are preferred for their high value, vital R&D takeaways, and “newness” (new investors).

Central London Office Markets’ Take on the Finances

The sector’s footprint over real estate effectively indicates how finances are doing. Here are the main takeaways from Deloitte’s 2023 London Office Crane Survey and The London business footprint report:

• FPS occupies the most office space in central London;
• Banks have the most office space, but it’s shrinking; 
• New developments increased by 80% this spring;
• It’s the highest level of refurbishment on record;

Regardless of the supply chain disruptions and the everchanging energy transition policies, real estate continues to be driven forth by the finances and professional services sector.

A Global Leader Must Be Open

Lisa Quest, Partner and Head of UK & Ireland at Oliver Wyman, beautifully puts it in the same City’s Vision: “We have a truly global financial centre. Our openness, legal and business traditions, and time zone and global connectivity make the UK a place where the world comes to do business. (…) This openness, in turn, helps drive innovation in our financial ecosystem.”

FPS’ Key Industries

Let’s take a quick look at the financial sector’s performance across its key industries through data taken from The City’s Key Facts about the British finances’ centrality:

Banks

London has 180 foreign banks or branches, making it a private and investment banking centre. Top names include Bank of America, J.P. Morgan, and Credit Suisse.

Insurance

London remains the largest hub, responsible for 7.6% of global gross written premiums. What’s unique about it is that it involves high exposure risks: 42% of the market of speciality risk classes is owed to London.

Funds and Investment Management

The UK is strong in fund management, making considerable investments in overseas markets. London is the second centre for hedge funds, with 10% of the world’s assets. It’s a global leader in green finance, with almost 300 environmental exchange-traded funds listed on the London Stock Exchange. The Exchange has also listed 333 foreign companies since September 2022.

Fintech

London has the second-best fintech supersystem, surpassed only by San Francisco. Performance metrics include employment rate, tax incentives for start-ups, the emergence of unicorns, and investments. In 2021, some of the largest fintech deals happened in Albion, of which the top three have been Revolut, Monzo, and checkout.com.

Economic Challenges

Without economic growth, opportunities are halted, and regression hits back. Here are the menaces:

Tech

• Digitisation
• New technologies adoption
• Lack of skills
• AI implementation
• Low cybersecurity

Regulations

• Uncoordinated regulators 
• High tax rates
• Low access to public funds
• Fiscal incoherence

Finances

• Low GDP growth rates 
• Slow wage growth 
• Inflation rising
• Interest rate rising

Energy

• High energy prices
• Climate change spending
• Net-zero transition

Social

• Geopolitical tensions
• Consumers spend less
• Poverty, inequality, inactivity

Future Prospects

We’ve witnessed the emergence of fintech and green finance throughout private businesses. The City proposes not to become an adopter but a leading force of those new narratives: climate change, tech, openness for private ventures, and streamlined international regulations. 

The City’s Vision report proposes nine steps to increase London’s economic impact and turn challenges into opportunities:

1. A national strategy and new governmental entities.
2. Perfecting the pension and insurance funds.
3. More attractive public funds.
4. Infrastructure for data and digitisation.
5. Mindsets for growth and innovation.
6. More funding for net-zero goals.
7. Innovative markets’ support.
8. London’s FPS promotion.
9. Cross-border networks of governments and experts.