The City will shrink if the UK crashes out of the European Union without a trading deal, senior finance executives warn, as the EU is told to prep for a no-deal Brexit.
Of 90 senior managers at UK-based financial firms polled by Big Four accounting firm EY, 96% said that entering into Brexit on 1 January without agreeing a bespoke trading relationship with the EU would cause the UK financial services industry to shrink “marginally” or “significantly”.
Just 4% of the City bosses, polled by EY on 3 December, believed a no-deal Brexit would prompt growth in the UK finance sector.
“It illustrates the uncertainty in the market as to what Brexit actually means, [and] what the future relationship will be,” said Andrew Pilgrim, EY’s UK government and financial services leader. “Obviously Brexit is a challenge in that its changing how cross border can take place.”
It comes as the European Commission president called on the European trading bloc to prepare for a possible no-deal Brexit on 1 January, hours after a failed attempt to break a deadlock in negotiations.
Jonathan Herbst, a partner at Norton Rose Fulbright said that the souring “mood music” between the EU and UK was important to finance executives hoping to retain some level of access to European markets after 1 January. “Clearly this is not a good position to be in,” he said.
A no-deal Brexit could leave City firms shut out of European markets overnight and unable to serve their EU clients from London.
Hilary Benn, the Labour MP who is chair of the parliamentary Committee on the Future Relationship with the European Union, told Financial News in November that a no-deal Brexit “would be a huge failure of politics and leadership on the part of both sides” and warned that the City faces “complexity, difficulty, uncertainty”, regardless of what trade terms are negotiated for the UK’s impending split from the European trading bloc.
“It is going to make life a bit more difficult and involve cost for one of our most successful sectors of the economy,” he said then.
With 21 days remaining until the UK officially transitions into its post-Brexit future on 31 December, there are three main areas over which the two sides are disagreeing: fisheries, governance and the so-called level playing field, which would ensure fair competition between the country and the 27-nation bloc.
Ursula von der Leyen, who runs the European Union’s executive body, posted on social network Twitter on 10 December that there was now “no guarantee that if & when an agreement is found it can enter into force on time”.
“We have to be prepared including for not having a deal in place on 1 January. Today we present contingency measures,” she said.
The British Prime Minister Boris Johnson and von der Leyen “had a frank discussion” about the state of negotiations over a three-hour dinner on 9 December, according to a statement from the prime minister’s office, but the dinner ended only with both sides agreeing to “further discussions” in a final effort to secure a Brexit deal.
The two sides agreed that “a firm decision should be taken about the future of the talks” by 13 December, the prime minister’s office statement said.
To contact the author of this story with feedback or news, email Lucy McNulty