Struggles of London stock market could be an opportunity for Yorkshire: Martin Towers

We have not witnessed interest rate reductions as forecast at the start of 2024. Predictions of five or six reductions this year to below four per cent in the UK have been replaced by perhaps only one or two and so far there have been none. At a pace of the former, the mood music would change. Sentiment would be turning positive, the gloom lifting, a feel-good factor returning, all good news for equity values.

But this has not happened as inflation has remained stubbornly above the magical two per cent for longer. This impact upon equity values is being keenly felt in The City with low UK equity values attracting overseas strategic buyers and private equity. The London public markets are shrinking in 2024.

Why is this? The answer tells us a lot about the UK today. The London markets play a disproportionate role in the UK economy through a size befitting London as a financial centre not just for the UK itself but as the former centre of Empire.

Those days are of course long gone but London has continued as a global financial centre. But now perhaps history is catching up.

The demand for UK equities from an ageing population is simply not there and no amount of regulatory and political support can change that. Eliminating stamp duty would be nice, but it is not going to shift the dial.

A strong dollar is driving much activity as US buyers pick off undervalued UK assets in the London market. Here is the demand that is missing, but once it’s gone, it’s gone.

London fund managers are facing redemption and withdrawal requests so in the short term this activity is helping, but it’s symptomatic of a fundamental problem for which there is no solution. But it’s been a good run.

Maybe we are now witnessing London being cut down to size. An opportunity for the regional centres like Leeds and Sheffield to level up with London, as all the bright young things don’t head to The Smoke for the best highest paid jobs in investment banking.

Can the UK transform itself into something else away from this historic focus upon finance and banking?

We need a positive culture and attitude change towards enterprise and wealth creation across the country because that is one thing London does have that is patchy elsewhere. The key is innovation into both manufacturing and services, that can be financed in the UK. More engineers and IT/AI specialists, fewer accountants.

The London equity markets are very short term in outlook and risk adverse. This does not fit well with innovation and risk taking.

We need alternative private sources of finance potentially from banks taking equity positions and a longer term horizon. Which means the clearing banks need some of those unemployed London investment bankers relocating to Leeds.

In the post Brexit world, the UK has the opportunity to re-invent itself as Singapore-on-Sea. Yet there are plenty of obstacles to overcome but it will take inspirational leadership and bold policies.

Martin Towers is the former finance director of Kelda Group, which was the parent company of Yorkshire Water.