• 1 Oliver Wyman (consultancy), “The Impact of the UK’s exit from the EU on the UK-based financial serv (...)
• 2 See for example, Thomas, D., “City minister seeks to calm fears over job moves to the EU after Brex (...)
• 3 O’Donnell, J. et al., “Brexit ‘disaster’ cost London 40,000 finance jobs, City chief says”, Reuters(...)

2Thus, although London remains the world’s second-largest financial centre, Brexit has weakened the overall performance of UK-based financial services, in line with some early predictions. Shortly after the referendum in 2016, one key initial estimate indicated that if trade between the UK and the European Union were to be based on WTO terms, then potential job losses in the City could be up to 31-35,000.1 For a while, this seemed to be a gross overestimate: in early 2022, for example, there was general agreement that only about 7,000 jobs had actually moved to the EU.2 However, in October 2024, Michael Mainelli, the Lord Mayor of the City of London, told Reuters that the impact had been much greater. He stated emphatically that Brexit had been a “disaster”, leading to an estimated 40,000 job losses, though new jobs were coming into the City in insurance and data analysis.3

• 4 Allen, K. et al., “Wall Street warns Theresa May of need for ‘long runway’ before Brexit”, The Fina (...)
• 5 As late as the end of June 2020, Michel Barnier felt it appropriate set out quite clearly how limit (...)

3Part of the reason why the impact of Brexit on UK-based financial services has been a mixture of setbacks and resilience is that the sector had a “long runway” for operators to adjust.4 Taking into account all the delays and extended deadlines surrounding Brexit, the UK did not finally leave the EU’s economic arrangements until more than four years after the referendum. This gave the sector, which is well-endowed with talent and money, time to prepare, although hopes for some sort of special deal for Europe’s largest financial market lingered even well into 2020, as the Brexit negotiations between Brussels and London continued despite Covid.5

• 6 See for example, Mardell, M., “What does ‘Brexit means Brexit’ mean?”, BBC News, 14 July 2016, at h (...)
• 7 May, T., “The government’s negotiating objectives for exiting the EU: PM speech”, 17 January 2017, (...)

5In the immediate aftermath of the vote to Leave on 23 June 2016, there was some initial hope that business between UK-based financial services and the EU would be able to carry on as usual, as it was not yet certain that Britain would leave the EU’s single market. These hopes were, however, gradually dissipated as the government of Theresa May began to define concretely what exactly Brexit meant. She had been elected leader of the Conservative Party in July 2016, as a former Remainer, but then campaigned on the empty slogan that “Brexit means Brexit”.6 Clarity came in January 2017 with May’s Lancaster House speech, saying that the UK would leave the European single market (and the customs union).7 This meant that UK-based financial institutions would lose their so-called “passporting rights” to the EU market: i.e. the ability to provide financial services across the Union based on specific EU Directives (such as the Markets in Financial Instruments Directive (MiFID)), which translate the principles of the free movement of services and the mutual recognition of regulations into EU law. Table 1 shows the number of UK-based firms using passporting (Outbound) and the total number of passports they held across EU member states in mid-2016, with firms holding multiple passports for multiple activities.

• 8 In his diary of the Brexit negotiations, Michel Barnier noted when listening to the May speech: “Je (...)
• 9 International Regulatory Strategy Group (IRSG), sponsored by TheCityUK and the City of London Corpo (...)
• 10 A good summary of the negotiating process can be found in Parker, G., Foster, P., Fleming, S., and (...)
• 11 For a short summary of the Trade and Cooperation Agreement’s measures on financial services see Sha (...)
• 12 On this, see for example, Sowels, N., “’Ever Greater Divergence’, but…: The Ongoing Saga of Brexit (...)
• 13 Parket, G. et al. The Financial Times, 22 Januart 2021, op. cit.

6Despite Theresa May’s emphatic position, which left Michel Barnier “stupefied” at the “number of doors she was closing”,8 there was still some lingering hope in the City of getting a “bespoke agreement with the EU, allowing wider, mutual rights of market access, to reflect the unique position of the UK in relation to the EU and reflecting their integrated and interdependent markets”.9 But it was not to be. As the consequences of Brexit became clearer, Britain’s political landscape became increasingly toxic, leading eventually to Boris Johnson becoming Prime Minister in July 2019, proroguing Parliament in the autumn, yet still going on to win a large majority in the general elections of December 2019, based on having an “oven-ready” plan to “get Brexit done”. In fact, Johnson and his chief negotiator (Lord) David Frost had nothing of the sort, apart from some general – but essential – agreement with Ireland about how to deal with trade flows to and from Northern Ireland. However, when Britain officially left the EU at the end of January 2020, there was still no overall deal in sight, and tense, and often acrimonious, negotiations thus continued throughout 2020, including during the Covid pandemic.10 These ultimately led to the signing of the Trade and Cooperation Agreement (TCA) on 30 December 2020. The TCA is in many ways a bare-bones deal, mainly with no tariffs or quotas on goods trade, but clearly shutting the bulk of UK-based financial services out of the single market.11 This resulted partly from the rancorous turn the Brexit negotiations had taken in general, including when the Johnson government indicated it would be prepared to break international law. But the result also reflected the EU’s growing desire to protect itself from potential developments in UK regulations, from fears that UK-based firms would set up mere shell operations in the EU while operating in the UK, and from the opportunities for EU actors to take business from London.12 Indeed, there was a clear feeling in London that “[t]hey [the EU] wanted to kick the City around a bit”.13

• 14 European Securities and Markets Authority (ESMA), ESMA sets out its final view on the derivatives t (...)
• 15 For a short explanation of equivalence see: European Commission, newsroom, Equivalence in financial (...)
• 16 Understanding the exact split between which trading is permited in London and which trading must oc (...)
• 17 See for example, Fernando. J. et al. “Understanding Derivatives: A Comprehensive Guide to Their Use (...)

7The major exception to the exclusion of UK-based financial services concerns the continued access of European actors to the London markets for euro-denominated derivatives trading (except for a limited number of specific derivatives, which the European Securities and Markets Authority (ESMA) has stated must be traded within the Eurozone).14 This access is based on the regulatory “equivalence” granted by the EU to London’s so-called central counterparties (CCPs): i.e. the EU considers that in this case UK “rules and supervision” are “equivalent” to EU rules.15 This means that European businesses may continue to use London’s CCPs, which clear trades in derivatives executed on exchanges (for some trades, the London exchanges may be used; otherwise, trades must take place in the EU, even if cleared in London).16 For the general public, these are arcane parts of the plumbing of international finance, but they play a significant role in financial and non-financial business. In the simplest terms, such derivatives allow actors in the non-financial economy (sometimes called the “real economy”) to buy derivative instruments to hedge against, say, exchange rate movements when exporting or to swap interest rate repayment schedules on their loans to better suit their repayment capacities, etc. On the other side of these deals are other agents – the counterparties – seeking opposite protection and “speculators” hoping to profit from price movements. These are typically financial institutions or individual investors who bet that the markets will move in their favour.17

• 18 In 2011, the ECB tried to bring euro-denominated derivative trading into the Eurozone because it be (...)
• 19 ION Markets, “Clearing the way: EMIR 3.0 challenges London’s grip on Euro derivatives”, Blog, 3 Oct (...)

9However, the location of this activity has led to a long-running tug-of-war between London and the European Central Bank (ECB), which pre-dates the referendum.18 Since Brexit and the UK’s exit from the single market, the European authorities have set repeated deadlines for trading and clearing in euro-denominated derivatives to be brought within the Eurozone, with the most recent extension occurring in January 2025, when a new deadline was set for 30 June 2028. For their part, the UK authorities are obviously keen to keep business in London, where the LCH handled “€20 trillion in euro IRS [interest rate swaps] in Q1 2025, up 18 per cent from the previous year, culminating in a dominant 92.9 per cent market share”. While the EU authorities are still seeking to develop such trading within Europe over time (notably with the EU’s new European Market Infrastructure Regulation (EMIR) 3), the continued position of London also stems much from the ongoing pressure by European derivatives traders who are worried about problems of financial stability, and who benefit from lower costs in London.19 At the time of writing, the issue therefore remains open.

• 20 Hutton, G., Panjwani, A. and Ward, M, “Financial services in the UK”, House of Commons Library Brie (...)

10The overall picture of how Brexit has affected UK-based financial services exports to the European Union is mixed, with some surprises. Perhaps the most important surprise is that the EU as a whole remains the UK’s largest export market – despite Brexit – although the gap with the United States has closed: see Graph 1. There has nevertheless been a clear, relative retrenchment: in 2017, the EU accounted for 40% of UK financial services exports, whereas in 2022 it accounted for only 32%, though this share rose to 34% in 2023.20

• 21 Ibid.
• 22 Reuters and Jones, H., “Amsterdam displaces London as Europe’s top stocks centre after Brexit”, Reu (...)

11Graph 1 also shows that the largest decline in financial services to the EU occurred between 2020 and 2021, when the cash value of exports to the EU fell by 3 per cent (while exports to the rest of the world increased by 10 per cent in the same period).21 This corresponds to the moment the UK left the single market, when, for example, trading venues like the LSEG were not granted equivalence for share trading: thus, on 4 January 2021, over €6 billion in daily share trading quit London for the Amsterdam stock exchange, making the latter Europe’s biggest share trading centre – at the time.22

• 23 TheCityUK, Key facts: about the UK as an international financial centre 2024, January 2025, p. 5 at (...)

12That said, Table 2 shows how the current value of exports in pounds has rebounded since 2022 (partly boosted, of course, by post-pandemic inflation). Figures released by the ONS at the end of 2025 show that in 2024, the EU exported financial services worth £33,682 million to the EU, considerably higher than the £21,409 figure for 2020 (flows related to insurance and pensions, by contrast, have stagnated). The strong export position of the UK’s financial sector is also confirmed by the fact the UK had the world’s largest surplus in financial services at $98.1 billion (dollars) in 2023, a surplus that was considerably higher than the US at $73.1 billion (even though the United States was the world’s largest exporter of financial services), and triple the value of Singapore’s trade surplus on financial services at $30.9 billion.23 Graph 2 shows that the United States was the world’s largest exporter and importer of financial services in 2023, but that the overall trade surplus was greater for the UK.

• 24 See for example, Z/Yen and China Development Institute, The Global Financial Centres Index 38, Sept (...)
• 25 Z/Yen and China Development Institute, The Global Financial Centres Index 25, March 2019, p 11.

17Finally, Z/Yen, a City-based commercial think tank which has partnered with the China Development Institute since 2016, has calculated competitiveness evaluations and rankings for the major financial centres around the world since 2007. These calculations provide a composite index of competitiveness, which takes into account the centre’s business environment, human capital, infrastructure, financial sector development and reputation.24 According to these twice-yearly calculations, London and New York were consistently vying for top place up until September 2018 – GFCI 24 in Graph 5. More recently, however, New York has led London as the world’s top financial centre, no doubt reflecting the way the industry was reorganising itself in the face of Brexit. For example, the publication of the index in March 2019 quotes one London-based fund manager who stated: “We have reluctantly decided to move to mainland Europe. We cannot wait until the Brexit debacle is sorted out”.25 That said, Graph 5 also shows how London (as indeed other major centres) is once again converging on New York as the latter’s ranking stagnates.

• 26 Sowels, N. op cit, 2022.

18When the UK left the EU’s economic arrangements on 1 January 2021, by definition, it still had the same financial regulatory framework as the EU, although in some areas, the UK’s re-regulation of finance following the GFC had actually gone further than what was required by the Union. This was most notably the case of so-called “ring-fencing”. Based on the 2012 report of the Independent Commission on Banking (also called the Vickers Report, after its chair Sir John Vickers), ring-fencing involves separating the investment and commercial banking activities of banks, so that in the case of crises affecting investment banking activities, commercial banking activities are, in principle, protected. Through the Senior Managers and Certification Regime (SM&R), established in banking in 2016 and in insurance in 2018, the UK’s regulatory authorities also strengthened direct managerial responsibility in these financial services by making senior managers personally responsible for failures by employees or departments under their direct authority (at the time of writing, these regimes are being reformed, although the principle of individual responsibility is set to be retained). Lastly, and again in line with the Vickers’ Report, the UK pushed ahead with increasing banks’ own-capital/equity reserve requirements beyond EU levels, to strengthen their resilience to shocks.26

• 27 Woods, S., ‘Stylish regulation’, speech, UBS Financial Institutions Conference, Lausanne, 16 May 20 (...)
• 28 Saporta, V., “The ideal post-EU regulatory framework”, speech, International Business & Diplomatic (...)

19The principles guiding these measures were to make the UK’s financial system safer in line with the development of macroprudential policy that emerged after the GFC (see the next section), as well as to improve its competitiveness through better regulation. These principles have also shaped the approach taken by the UK financial authorities since Brexit. For example, the Bank of England’s Deputy Governor for Prudential Regulation and CEO of the Prudential Regulation Authority, Sam Woods, stated in 2019 that the UK’s approach should be “stringent” but “stylish”, and later in 2020 said that rules should be “strong” and “simple”.27 At about the same time, Dr Victoria Saporta (Executive Director of Prudential Policy Directorate at the Bank of England) presented research arguing that regulation tended to be somewhat more effective and efficient when conducted by independent bodies subject to scrutiny and accountability to elected politicians.28 Since Brexit, these principles have been guiding the evolution of the UK’s regulatory framework, intending to make it more suited to UK conditions, and “nimbler” compared to the slower regulatory process of the European Union, with the aim of favouring fintech and innovation. This process of ongoing re-regulation has been protracted, and has involved extensive consultations with actors and experts. While it is still not over, the UK’s re-regulation post-Brexit is thus far from having been a bonfire of red tape as some more starry-eyed Brexiters may have wished. It is clearly guided by concerns for macroprudential regulation: see below.

• 29 DavisPolk, “The Financial Services and Markets Act 2023 ushers in an era of major regulatory change (...)
• 30 The Financial Conduct Authority (FCA) “regulates the financial services industry in the UK. Its rol (...)
• 31 Ibid.

20The centre piece of Britain’s new regulatory drive is the Financial Services and Markets Act 2023 (FSMA 2023). One of its key aims is to set out the legal framework by which the UK can amend (or scrap) the “assimilated” EU law that was in force upon leaving the Union. Section 1 of the Act notes that such EU law includes: “EU regulations and directives, delegated regulations and implementing acts, UK subordinate legislation… and parts of UK primary legislation”. More specifically, the FSMA 2023 revokes: “Prospectus Regulation [the EU regime harmonising prospective information published when shares and securities are brought to the market], the Market Abuse Regulation, the Capital Requirements Regulation and the Markets in Financial Instruments Regulation”. By contrast, assimilated EU law incorporated into the rulebooks of the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) was not directly revoked by FSMA 2023. Instead, “these rules can be updated by the regulators themselves in accordance with their normal processes set out in the Financial Services and Markets Act 2000 (as amended) (FSMA 2000)”.29 In other words, the FSMA 2023 strengthens the role of these two independent bodies, in line with Saporta’s research mentioned above.30 Indeed, it is expected that a large number of regulatory requirements will “generally move to the rulebooks of the regulators”.31

• 32 Summary of the House of Lords Financial Services Regulation Committee, Growing pains: clarity and c (...)
• 33 Ibid.

21This process is expected to take several years, but considerable progress has already been made in priority areas such as: i) in wholesale markets regulations; ii) company listing on stock exchanges; iii) the securitisations regime or rules and procedures that govern securitisation (such as the transformation of mortgages and loans into tradeable securities); and iv) Solvency II (the EU Directive that codifies and harmonises insurance regulation, including the capital insurance companies must hold), which the UK authorities want to lighten to release more capital for productive investment. It is beyond the scope of this article (and, indeed, my competencies) to set out, in simple terms, the complex details of the reforms underway. But the UK’s domestic re-regulation is very much work-in-progress. Thus, a report by the House of Lords Financial Services Regulation Committee published in June 2025, and entitled Growing pains: clarity and culture change required: An examination of the secondary international competitiveness and growth objective, made several criticisms of the FSMA 2023. While the primary or “operational objectives” of the UK regulators are to protect consumers, protect financial markets and to promote competition (see footnote 29), the secondary objective of the FSMA 2023 involves UK regulators (the Bank of England, the PRA and the FCA) supporting international competitiveness, innovation and growth. While lauding the way this secondary objective “has proved a valuable stimulus for regulators to increase their focus on the impact of their activities on growth and international competitiveness within the sector”, the House of Lords report also notes that the secondary objective has “brought into stark relief long-standing issues that limit or introduce unnecessary frictions to financial services firms’ ability to grow, innovate and compete”.32 Moreover, concerning the functioning of the FCA and the PRA, the report notes that the committee is “not convinced that the link between financial services regulation and growth in the wider economy has been sufficiently understood or rigorously evidenced”. Specifically, the report argues that “the regulatory environment is characterised by a culture of risk aversion […] driven by the repercussions of the Global Financial Crisis” and goes on to assert that: “the burden of compliance [with regulation] is perceived to be disproportionately high. Firms have told us that they are inundated by information requests from the FCA and the PRA and that there has been a significant degree of ‘mission creep’”. Moreover, the House of Lords report points to uncertainty over the regulatory regime which could constitute “a serious barrier – a ‘regulatory penalty’ – to the advancement of the secondary objective”.33

• 34 Nic Martin, FCA’s Support for Innovation and Spotlight on the Sandbox Initiative”, Finnovation, UK, (...)
• 35 Innovate Finance, FinTech Investment Landscape 2024, at https://www.innovatefinance.com/capital/fin (...)

22Fleshing out the UK’s independent regime is thus still ongoing. Suffice it to say at this point that since Brexit, the FCA has expanded its innovation operations, notably reinforcing the activities of its so-called “Regulatory Sandbox”, which was originally set up in 2016. The enhanced Sandbox allows new financial services to be “experiment[ed] without full regulatory commitments”, thus providing firms with regulatory flexibility, controlled experimentation and direct feedback from the FCA.34 This has helped sustain the UK’s position as the second largest recipient of fintech investment: in 2024, the United States was the top global destination for fintech investment with $22 billion (dollars), followed by the UK ($3.6 billion) and then India ($2.2 billion): France was in seventh place with $1.1 billion.35

• 36 TheCityUK, op. cit., p 17.
• 37 Mourselas, C., John, J. and Asgari, N., “London becomes ‘quant’ powerhouse as traders rake in reven (...)

23Along similar lines, the UK is “the leading Western centre for Islamic finance” and is “the only non-Muslim-majority country in Europe [i.e. excluding Turkey] to have a significant share of Islamic banking assets” (although at $8.3 billion in 2023, these only accounted for 0.2% of global Islamic banking assets”.36 Finally, in this somewhat anecdotal list of activities, The Financial Times reported in early November 2025, that London had become a “’quant’ powerhouse”: i.e. it is reinforcing its position in algorithmic trading of many types of financial products, “helped by a pipeline of skilled graduates [who] often join big tech companies”.37

• 38 The literature on macroprudential financial regulation has become extensive. In this article, I ref (...)
• 39 Bank of International Settlements, “Overview of Basel III and related post-crisis reforms - Executi (...)

25Although macroprudential financial policy has been discussed since the 1970s, notably by the Bank of International Settlements (BIS), it has come to the forefront of central bank policy-making and regulatory theory since the Global Financial Crisis (GFC) of 2007-2009, which exposed the limits of microprudential regulation.38 The latter involves the regulation of individual banks and financial institutions by the authorities, but fails to take into account the many ways in which the failure of one institution may either entail “systemic risk” through direct contagion (i.e. insolvency in one institution leading to insolvency in another institution) or through more general changes in the way market actors behave collectively. For example, the closure of Lehman Brothers on 15 September 2008, which triggered the explosion of the GFC already underway, immediately caused losses for numerous other institutions, but also provoked a worldwide change in market behaviour as trust broke down throughout the global financial system, leading to a generalised panic and “credit crunch”, with agents (households, private investors, banks, other financial institutions and companies) refusing to extend credit to others and/or withdrawing investments where they could. In short, multiple risks had accrued over the years, most notably in U.S. subprime real estate lending and the development of financial derivatives based on such lending, and when Lehman Brothers went bankrupt, the global financial system suffered a “systemic shock” as confidence broke down worldwide. To deal immediately with the GFC and put international finance on a firmer-footing, the G20 (bringing together the world’s leading economies and countries and their representatives), as well as the Basel Committee on Banking Supervision, set out a variety of policies to: i) raise banks’ own capital and improve their liquidity (by increasing leverage ratios) in order to make banks more resilient in the face of future shocks; develop means to close banks by making private investors “bail-in” capital so as to avoid public “bail-outs” (using so-called “living wills” whereby banks make contingency plans for possible bankruptcy); and iii) enhance surveillance mechanisms of banks, including “stress testing” (to model how banks may react to economic difficulties) and broader, collective (global and national) surveillance of banks deemed to be “systemically” important.39

• 40 Bank of England, “Bank of England Governor Mark Carney’s statement following EU referendum result”, (...)
• 41 Ganesh, J. “Brexiters who bully central bank governor Mark Carney will target others”, The Financia (...)

26Given the GFC and these policy developments in macroprudential regulation, the UK financial authorities had prepared for a possible Leave vote in 2016 – in stark contrast to Britain’s political establishment. On the day after the referendum, the Governor of the Bank of England made a reassuring public statement that the Treasury and Bank had undertaken “extensive contingency planning” for a Leave vote, that it had stress-tested UK banks “against scenarios even more severe” than Brexit, that UK banks were well-capitalised and that the Bank of England was ready to provide a further £250 billion to banks through its normal lendng facilities if necessary.40 As Prime Minister David Cameron announced his resignation, and the Leave leaders like Boris Johnson and Michael Gove appeared dumbfounded on TV, Mark Carney (the Governor) appeared in the “eerie void, equipped with a lectern and baritone that suggested Morgan Freeman as the soothing US president in a disaster movie,” to quote Financial Times columnist Janan Ganesh, who went to note appropriately that, “It takes some craft to play down a shock while making handsome provisions for it”.41

• 42 Moore, E. and McCrum, D., “Bank of England cuts rates and renews QE: how markets are reacting”, The (...)
• 43 Bank of England, Financial Policy Summary and Record of the Financial Policy Committee Meeting on 2 (...)

27And so it went on. In early August 2016, the Bank cut the Bank Rate to 0.25 per cent and announced a new programme of government bond buying of £60 billion (i.e. more quantitative easing (QE), see below).42 Subsequently the Bank (more precisely its Financial Policy Committee (FPC)) pursued more structural consolidation of UK banks, including: encouraging them to raise equity (Tier 1 capital) to around 17% of risk-weighted assets, and “more than three times higher before the global financial crisis”; to stress-test major banks to ensure they could deal with “a worst-case disorderly Brexit”, and keep lending to the economy; maintaining a low-rate countercyclal capital buffer; and to implement “legislation, temporary permissions and other preparations […] to ensure that UK households and businesses [would] be able to use existing and new services from EU financial institutions”. More broadly, the Bank/FPC approach was to “remain committed to the implementation of robust prudential standards in the UK”, “[i]rrespective of the particular form of the UK’s future relationship with the EU, and consistent with its statutory responsibilities.43 Overall, the UK authorities, led by individuals who had experienced the GFC (e.g., Mark Carney and Andrew Bailey), thus clearly took careful and adroit measures to ensure financial stability and to support the economy, in line with the macroprudential framework developed after the GFC.

• 44 El-Erian, M., The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse, New (...)
• 45 Sowels, N,. “The Coalition’s Economic Policy of Fiscal Austerity and Monetary Experimentation by th (...)

28The same careful policy continuity is also evident in monetary policy. In the wake of the GFC, major central banks adopted new instruments for macroeconomic management, as monetary policy became The Only Game in Town, in the words of Mohamed El-Erian (among others). Writing in the mid-2010s, he notes: “[e]ver since the 2008 global financial crisis, central banks had ventured, not by chance but by necessity, ever deeper into the unfamiliar and tricky terrain of ‘unconventional monetary policy’”.44 Apart from so-called “lower-bound” interest rates, quantitative easing (QE), and direct market interventions already mentioned, such unconventional policies also included clear “forward guidance” for markets about the future path of interest rates and QE. While communicating clearly with markets had long entered the central bank playbook for anchoring expectations under the so-called “Jackson Hole” consensus of inflation targeting that had existed before the GFC, “forward guidance” took this a step further in giving clear indications of how long policies would be maintained. In the UK (and the United States), this even went as far as establishing a specific unemployment target of 7 per cent (in the early 2010s) to be achieved before policy (interest rates and QE) would change, provided inflation and expectations remained in check.45

• 46 Keep, M. and Harari, D., “Coronavirus: Economic impact”, Research Briefing, No 8866, House of Commo (...)

29The Bank of England’s monetary policy response to Brexit extended the application of these new instruments, albeit with forward guidance being toned down. As a result, interest rates remained low throughout the decade and even into the early 2020s, with the onset of the Covid pandemic. Indeed, the latter gave a further huge boost to quantitative easing, with three waves of asset purchasing announced by the Bank of England during 2020, bringing the Bank’s total stock of assets acquired since the GFC up to £895 billion,46 while the Bank Rate at one point was taken down to 0.1 per cent.

• 47 Haldane, A., “Inflation: A Tiger by the Tail?”, Speech given online, Bank of England, 26 February 2 (...)

30With the onset of the pandemic, the consequences of Brexit for growth, trade, inflation, and economic policy were largely obscured for several years. While UK consumer prices fell throughout 2020 as economic activity and household spending slumped, they subsequently rose strongly in the spring of 2021, with the consumer price index surging to 11.1% in October 2022, as energy prices in Europe accelerated even further than before, due to the war in Ukraine (the Russian invasion began on 24 February 2022). The Bank of England, and indeed the Federal Reserve (and other central banks), was wrong-footed by this explosion in prices, practically unknown to anyone below the age of 40. In the years – even decades – before Covid, inflation had been low, and then suddenly a whole host of factors came together that led to prices accelerating strongly, including: global supply-chain disruptions due to Covid, pent-up consumer demand because of lockdowns giving way to higher household spending, labour market dislocation and the “Great Resignation” as people switched jobs or even stopped working. And then there was fiscal stimulus. Despite some prescient warnings in early 2021 by Andy Haldane, Chief Economist at the Bank of England, fiscal support for households persisted in the UK as the Covid furlough programme was not wound down until the end of September 2021, with the government then providing further support to household incomes by capping energy bills (in the US, the incoming Biden administration opted to “go big” with a further, huge budget boost in February 2021, despite the clear and controversial warnings of inflation by Lawrence Summers).47

• 48 The consumer price inflation figures used here are taken from Trading Economics, United Kingdom Inf (...)
• 49 King, S.D., We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years, New Haven (...)

31While inflation in the UK (and elsewhere) did subsequently did come down quite quickly, and somewhat unexpectedly in 2023 onwards, actually falling to annual rate of 1.7 per cent in September 2024, it picked up again in 2025, finishing at an annual rate of 3.4 per cent in December 2025:48 i.e. well above its 2 per cent target, which has guided UK monetary policy (as elsewhere) for more than 20 years. It is not easy to tell to what extent this higher rate of inflation is still linked to Brexit, although, as the “slow puncture” effect of Brexit on the UK’s economic performance persists, the more difficult trading environment with the EU may also partly explain the stickiness of inflation. This supports the observation by Stephen King (former chief economist at HSBC and not the thriller writer) that “[i]nflation may sometimes be dormant, but it has never been banished. It always threatens to return”.49 Controlling inflation is thus a never-ending quest.

• 50 Mann, C. “Quantitative tightening and monetary policy stance”, Speech, Bank of England, 2 June 2025

32How exactly this feeds back into finance is also not easy to say, although it seems likely that the historically unprecedented period of monetary policy (lower bound interest rates and QE), which began with the GFC, is surely over, and we are returning to a world neatly-framed by Walter Bagehot’s quip that “John Bull can stand many things, but he cannot stand [a Bank Rate of] two per cent”. Other things being equal, higher – or should I say “normal” – interest rates should help bank profitability in more conventional lending activities (to households and small businesses, etc.), while reducing the attractiveness of speculative assets like Bitcoin and cryptocurrencies, which produce no income stream. Similarly, the Bank of England has begun reducing its asset stock since 2022 (i.e., pursuing quantitative tightening), thereby pushing up long-term interest rates.50 This again, other things being equal, helps conventional banking and the management of maturity mismatch, whereby banks borrow short and lend long, and so should contribute to financial stability.

• 51 HM Treasury, UK-EU Memorandum of Understanding on Financial Services Cooperation, 27 June 2023, at (...)

35Otherwise, the broader relations between the UK and the EU have improved since the signing of the Windsor Framework by the Sunak government and the EU in February 2023, bringing to an end (most) of the remaining points of contention concerning Northern Ireland. This led the way – finally – to the signing of a new Memorandum of Understanding between the UK and the EU in June 2023, “[b]ased on a shared objective of preserving financial stability, market integrity, and the protection of investors and consumers”, by setting up bilateral exchanges and “enhanced cooperation and coordination including in international bodies as appropriate”.51

• 52 See for example, HM Treasury, “Banking, insurance and other financial services if there’s no Brexit (...)

37Enhanced cooperation between the UK and the EU brings other advantages to both parties. Firstly, it should strengthen a “European approach” to regulation, which may turn out to be a bit more careful than, say, the drive to deregulation that is currently going on in the United States under the second Trump administration. Secondly, for the EU, an ongoing dialogue with London could feed into its own evolving regulatory environment, for instance, the attempts to try to complete a European capital markets union. Given the size and international experience of the UK financial sector, Britain played a significant and constructive role in advancing EU financial regulation while it was still a member of the Union. Re-opening official lines of communication between London and Brussels should help restore some of the flow of experience back across the Channel. It could also help in the event of future financial crises, especially as the US authorities now may not be so amenable to coordinating international responses in the future, as they were in the wake of the global financial crisis or the Covid pandemic. Even as the Brexit negotiations went through their most uncertain stages in late 2018 and 2019 (notably the repeated delays of actual Brexit day itself), the financial authorities in the UK and EU worked to avoid financial instability, notably by the provision of equivalence to derivatives trading and by the UK authorities providing other “temporary permissions”, etc. in the event of the UK leaving the EU with “no deal”.52 Just as the much-changed global geopolitical environment since Britain left the EU has encouraged greater cooperation between the two parties in defence, so they may discover common interests in the event of future financial crises.