Reports today suggest that the UK government has agreed a deal in principle with the European Union. If correct, it looks as though the UK will remain in the customs union for the foreseeable future as the issue of Ireland is resolved. However, as they say in political circles, this has the look of a difficult subject “being kicked into the long grass”. So what does this mean for the London property market?
Services not included
We know that the service industry in the UK is significantly larger than that of goods. Manufacturing has fallen dramatically over the years and it is fair to say the UK is a service industry led economy. So, while the battle goes on regarding a border between Northern Ireland and the Republic of Ireland or Northern Ireland and the UK, there is no mention of the services industry.
This is remarkable when you bear in mind the number of financial giants in London who’ve already upped sticks and taken a growing number of their staff elsewhere. This has had a knock-on effect to the London property market although in reality recent falls have done little to dent performance figures over the last decade. As a consequence, the idea of “kicking the idea into the long grass” does little to help issues surrounding London property.
When does temporary become permanent?
Is unclear at this moment in time whether UK membership of the customs union would last for months or potentially years. When does temporary become permanent? Are politicians simply waiting for a change in public opinion? What does this do for the UK economy in the short term?
The whole point of Brexit, in the eyes of those who wanted to leave the European Union, is the ability to negotiate trade deals for the UK. It is unlikely the UK would have such freedom if still a member of the customs union. If this membership was to drag on for years, with the cloud of departure hanging over, what would this do to UK businesses and investment?
London property market
If there is no timescale on this “temporary” membership of the customs union it is difficult to see a significant recovery in London property prices in the short to medium term. It is also difficult to see how any of the major financial institutions could justify a return to London when they may need to move out again. Despite the Bank of England chastising European counterparts regarding a lack of preparation with regards to money markets, there is very little in the way of clarity about the UK financial services industry and its future relationship with the European Union.
We know that financial markets form a major part of the London economy. We know that the financial sector feeds the “expensive” London property market. If a clear Brexit deal or no deal scenario was confirmed then employment, property and financial markets would adjust accordingly. This constant flip-flopping between Brexit and a no deal Brexit is a worst-case scenario. How can businesses, investors and those living in the UK even begin to plan for the future?