PwC warns UK financial services single market access will be politically difficult

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PwC has warned financial services that maintaining single market access would be a difficult outcome to achieve politically.

The professional services firm says passporting is an important factor that contributes to London’s success as an international financial centre and that the UK would have to join the EEA when it leaves the EU in order to maintain this.

But PwC argues that access to the single market is politically difficult because it requires the free movement of labour, contributions to the EU budget and adoption of EU legislation.

Dublin would replace London as the EU’s most important financial centre if, all other aspects being equal, the UK lost passporting rights by leaving the single market, according to PwC’s of European financial hubs.

Its gap with Luxembourg, Paris and other EU cities could also narrow significantly. The presence of the ECB in Frankfurt and Esma in Paris could see either of those cities emerge as new star performers.

In the asset management industry M&G has begun establishing a Dublin-based fund unit in the aftermath of Brexit and Columbia Threadneedle has announced it will expand its Luxembourg business.

Senior economist at PwC Richard Boxshall says financial services bosses should focus on lobbying UK Government and EU politicians to retain as much single market access as possible, particularly the retention of passporting rights.

“London’s position as an international financial centre is not by any means purely dependent on EU passporting.

“Other factors such as access to skills and a strong and stable legal system should see it remain as a leading global financial hub in the years ahead. But the potential loss of EU market access poses a challenge for many financial services firms.”

Yesterday, London mayor Sadiq Khan said he was confident the city would remain in the single market, but Brexit minister David Davis has already said that his preferred relationship with the EU would be like the recent Canadian free trade deal.

PwC says its base case scenario is that the UK will narrowly miss a recession, but will face close to zero per cent growth in the last quarter of 2016 and the first quarter of 2017. It has revised its annual GDP forecast from 1.9 per cent in 2016 and 2.3 per cent in 2017 to 1.6 per cent and 0.6 per cent.