LONDON (Reuters) - Prime Minister Theresa May meets financiers from firms including Goldman Sachs on Thursday to discuss the impact of Brexit on Europe’s financial capital, as London’s mayor said Britain could face a “lost decade” of low growth and investment.
As May plots Britain’s course for Brexit, London’s vast financial services industry is scrambling to prepare for losing access to the world’s biggest trading bloc, the City of London’s biggest challenge since at least the 2007-2009 financial crisis.
At best, the omens are mixed for London.
Brexit was the main reason for a 37 percent drop in new jobs available in London’s financial sector last month, according to a report from recruiting firm Morgan McKinley.
London Mayor Sadiq Khan said that Britain would be shunted into a ‘lost decade’ of low investment and shed almost 500,000 jobs if it fails to agree a trade deal with the European Union.
“If the government continue to mishandle the negotiations we could be heading for a lost decade of lower growth and lower employment,” Khan said. “Ministers are fast running out of time to turn the negotiations around.”
Khan cited research from the Cambridge Econometrics consultancy which showed Britain could lose 50 billion pounds in investment over the next 12 years if it fails to agree a trade deal.
The study said that in a no-deal scenario, the industry that fares the worst will be financial and professional services, with as many as 119,000 fewer jobs nationwide.
London vies with New York as the world’s financial capital. By far the biggest EU financial centre, London dominates the $5.1-trillion-a-day (£3.78 trillion) global foreign exchange market and hosts more banks than any other centre.
But other EU capitals see Brexit as an opportunity to grab business from London. The EU has already proposed that clearing of euro-denominated derivatives, done mainly in London, could move to the euro zone without a comprehensive Brexit deal.
A stand-off between Britain and the EU over future access to the single market for London’s financial services industry is shaping up to be one of the key Brexit battlegrounds before Britain is due to leave the bloc in March 2019.
Since her botched bet on a snap election cost her party its majority in parliament, May has sought to reassure finance chiefs about Brexit, although she cannot give certainty about the future of the post-divorce relationship with the EU.
She will meet finance chiefs including Jes Staley, chief executive of Barclays, and Richard Gnodde, chief executive of Goldman Sachs International (GS.N) in Downing Street on Thursday.
But financial services companies are reluctant to hire, according to Morgan McKinley. Financial services jobs new to the market in December fell to 3,150 from 4,980 in December 2016, it said.
Many banks, insurers and other financial firms are enacting contingency plans to shift parts of their European operations to the continent because they are likely to lose the right to sell their products freely within the bloc from London.
The EU’s chief Brexit negotiator, Michel Barnier, said on Tuesday the EU would not give financial firms based in Britain a general “passport” to do business in the single market.
Bloomberg reported that Germany would demand Britain pay for financial firms to have access to the EU market after Brexit, though EU officials said Britain would not be able to cherry pick its post-Brexit relationship.
British officials, who argue that the EU’s biggest economies would find it hard to function should London be isolated financially, are confident the EU will be flexible.
But if Britain insists, as May does, on viewing the Brexit vote as a call for tougher immigration controls, it is unclear how Berlin and Paris could allow London-based financial services companies full access to the EU market for free.
Reporting By Andrew MacAskill and Anjuli Davies; editing by Guy Faulconbridge