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At the start of 2021, the existence of a Brexit deal is 鈥榦ne less thing to worry about鈥� rather than a turning point for the UK property market or economy.

Despite the fact an agreement was reached on Christmas Eve, the pound was trading at around US$1.36 in the second week of January, demonstrating how currency markets have initially responded with indifference.

There are three key risks hanging over the UK economy to explain this muted reaction.

First, the new Covid-19 variant, which means restrictions will remain tighter for longer and the associated economic impact will be more pronounced. We have revised our house price forecasts as a result.

Second, there is growing uncertainty around the drive for Scottish independence, which may come further into the foreground ahead of the Scottish Parliamentary elections scheduled for May.

The final reason is ambiguity surrounding the trading relationship between the UK鈥檚 services industry and the EU. Financial services account for 7% of the country鈥檚 economic output and the sector has consequently been a strong driver of activity in the housing market. This has been particularly true in higher-value areas of the capital and increasingly around the UK as the 鈥榚scape the country鈥� trend takes hold.

The early months of 2021 could see a re-run of the political posturing seen in recent years as the UK and EU attempt to agree a 鈥榤emorandum of understanding鈥� on equivalence rules for the sector, although without the ticking clock of Article 50 or the transition period.

Some trading activity has already been lost to the EU but how much of a threat remains to the UK economy and, as a consequence, demand for property?

Huw Jones, the European regulations correspondent at international newswire Reuters who has been covering the sector for 20 years, says the numbers themselves point to a limited impact.

鈥淭he financial services sector is worth £130 billion to the UK economy and EU business represents around £30 billion of that,鈥� he says. 鈥淎bout £10 billion of that £30 billion is safe, which includes asset management. A further £10 billion has already gone to Europe, including euro share, repo and bond trading and that wasn鈥檛 a surprise. The remaining £10 billion, which includes investment advisory activity, is what is now at stake in the equivalence talks with the EU.鈥�

While equivalence talks therefore relate to only around 8% of overall trading activity, Huw says there are still risks for London.

鈥淚t鈥檚 not a huge amount in the big scheme of things but as a global centre of finance you want to show you can serve the biggest trading bloc in the world. The concern for London would be you start to unravel the wider eco-system that the city feeds off to get the best prices for trading.鈥�

So, will a memorandum of understanding (MoU) be reached on the remaining slice of business?

鈥淲e will probably get one,鈥� says Huw. 鈥淭hat will mean you will sit down several times a year and compare notes to check the rules are all in line but that doesn鈥檛 mean equivalence will follow. It鈥檚 not a negotiation, it is the EU that will decide whether to grant access. The MoU will be used as a platform to pin the UK down on what rule changes there will be. The Swiss example shows that equivalence is a political process rather than technical.鈥�

If more business does move, it may not follow that a comparable number of staff leave London, says Huw. 鈥淭here is a tendency to hire locally so they鈥檙e not going to shift everyone to European hubs. Some of the rainmakers will remain in London in the hope some form of equivalence will be agreed.鈥�

How will London鈥檚 approach to financial services change after Brexit?

鈥淭he UK will do everything it can to attract more fintech business,鈥� says Huw. 鈥淭he rules may be eased to make listing in London more attractive to tech companies. It will also look to become a centre for green finance, the country has a much freer hand now in what it can do.

鈥淭he UK could ditch the bonus cap but there are global rules it still needs to adhere to. The UK could introduce its own version though and change how bonuses are paid. All the cap effectively did was to push up basic pay. None of this should affect the equivalence talks directly, though Brussels could accuse Britain of undercutting EU bankers.鈥�

And what do the large banks themselves make of the post-Brexit landscape? 鈥淭hey want certainty as they save a ton of money on compliance. The option of a Singapore-on-Thames isn鈥檛 attractive to them for that reason, they would rather there was no change.鈥�