International Competitiveness of the UK Financial Services Sector

This report examines relationship between outward foreign direct investment (OFDI) of the UK financial services sector and their competitiveness. The UK's financial services sector is currently facing significant challenges, as evidenced by a series of declining measures in export performance and international competitiveness. Key indicators show a decrease in export value, export share, revealed comparative advantage, and market share within the global financial industry. These trends suggest a weakening position of the UK in the financial services sector on a global scale, highlighting the need for strategic interventions to reverse these declines and restore the sector's competitive edge. In response to Brexit-related uncertainty and the potential loss of seamless access to the EU’s single market, UK financial firms engage in both greenfield investments and mergers and acquisitions (M&As) actively. Before 2016, large UK financial firms dominated greenfield investments in the EU. However, following the referendum, micro and small firms accounted for over 50% of new entrants, with younger firms expanding at the fastest rate. In M&As, acquiring firms even accelerate the activities before the referendum, these tend to be larger and more financially stable, while target EU firms typically generate higher revenues but are less profitable and financially weaker.