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Brexit: London Falling

Published on: 21/10/2016

Until not long ago London could undoubtedly be dubbed the multicultural heart of Europe. Historically shaped by migrations ever since its Roman origin, the city today is home to one of the most ethnically diverse populations in the world. This has been instrumental in the city’s development, turning it into a major center for innovation and job opportunities, surpassing even metropolitan giants like New York City or Hong Kong. Now that the new government has settled in and maintains a firm stance on continuing with the Brexit, what would happen to Europe’s leading business destination?

The EU has sworn to make things very difficult for Britain when the negotiations begin, mostly in order to discourage other member states from following the UK’s example. Cutting off access to the world’s largest single market could definitely be rough on the Kingdom’s economy and would perhaps have a negative effect on the number of new jobs that open each year. Some expect that the city would no longer be appealing for business and investment once it is separated from the rest of Europe.

Immigration is a particular point of interest here. Having access to all the skilled workers across the European Union, the UK has had the chance to attract highly-skilled professionals from many sectors. At the same time the discussion before and after the Referendum showed a lot of animosity towards immigrants, driven by the general claim that they are “stealing” natives’ jobs. Despite the topic giving rise to heated arguments, it is reasonable to argue that in times of rapid globalization the decision of the UK to isolate itself may severely hinder the country’s progress.

Education is another biggie in this conversation. London with its variety of higher education institutions such as UCL and LSE benefits from nearly a quarter million dollars of revenue each year from international students. If the process of admitting international students becomes more cumbersome due to visa regulations and higher tuition is applied to them, the city risks losing a great amount of its appeal. Students will be able to find a place in many other institutions across the world, but would British universities thrive or even survive such circumstances? For many institutions international students amount to up to 45% of the entire student body.

While most of this is still just speculation, there is already solid proof that Brexit has had a negative impact on the British economy (and it hasn’t even happened yet!). The pound has dropped dramatically, eroding the difference between wages in the UK and other European countries, which used to be one of the main reasons people would prefer Britain, London especially.

A major concern to finance experts is also what would happen to the City of London – the center for economic activity and the most active stock market in Europe. London was only able to gain this power through heavy deregulations administered by Margaret Thatcher’s cabinet. A hard divorce from the EU is likely to complicate things and turn London into a far less appealing place to do business.

For a recent analysis of the Pound Sterling’s movement, please check our technical analysis.

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