Businesses need a Brexit transition deal to be “urgently reached” to avoid a costly exodus of banks and jobs, a top City lobby group has warned.
Echoing comments made by a leading Bank of England official earlier this month, TheCityUK has slammed the failure to agree a transitional agreement so far, and warned of the damage to investment and jobs if such a deal is not struck by early next year – at the very latest.
“Firms are beyond the planning stage now,” said chief executive Miles Celic. “If they haven’t done so already, most will be ready to press go on their contingency plans in the New Year.
“They can still take their foot off the accelerator if a transitional deal is agreed, but without progress soon, it may be too late.”
In a summary paper on transitional agreements, TheCityUK outlines what it believes is at stake for both the UK and the EU if a credible political agreement on transition, supported by all the relevant regulators, cannot be reached by the first quarter of 2018.
The stark warnings followed a last-ditch attempt by British Prime Minister Theresa May to persuade European leaders to open talks on a transition period, ahead of a crunch EU summit later this week.
Mrs May had dinner with European Commission chief Jean-Claude Juncker in Brussels on Monday night, in a meeting that was described by both sides afterwards as "constructive and friendly".
But in reality, concern has been mounting at home due to the deadlock in the divorce talks, and the lack of progress in agreeing a two-year transition period so that financial institutions aren't left facing a ‘cliff-edge’ switch when the negotiation period ends in March 2019.
The lack of clarity has already forced a number of firms to step up their Brexit contingency plans.
Goldman Sachs, Morgan Stanley, JP Morgan, Citigroup and Standard Chartered are just a few of the institutions which have revealed plans to shift some of their operations out of London amid the stalemate in Brexit talks.
Without a transition deal in place, many more firms will be forced to accelerate their contingency plans, TheCityUK warned.
“EU and UK negotiators cannot delay discussing a transitional deal any longer if they want it to hold any real value,” Mr Celic said.
“This isn’t just about business leaving the UK,” Mr Celic said. “It is about the very high risk of jobs, capital and inward investment leaving Europe entirely. The resulting fragmented markets will be of benefit to no one, with costs likely to increase for customers right across the continent.”
He added that some of the damage would be irreversible.
"Once businesses start moving, there is no reverse gear. It is simply not efficient or economically viable to move operations twice."
The group called on UK and EU leaders to strike a transitional deal by the first quarter of 2018, which provides continued mutual market access, avoids two sets of costly adaptation phases, and sees the UK accept all of the rights – and obligations – of the single market in line with EU law during the transition period.
“Equally, the transition period must be long enough to finalise the new relationship between the UK and the EU27, including the conclusion of an ambitious and comprehensive UK/EU free trade agreement and the design of the new regulatory framework accompanying it,” the group said.