If the UK exits the European Union, it could wreck London’s position as the only financial center to rival New York and isolate the country’s economy, research ordered by a lobby group for banks and money managers concluded.
Prime Minister David Cameron has promised to renegotiate the terms of Britain’s EU membership and hold an “in-out” referendum by the end of 2017 if his Conservatives win a 2015 national election.
But many of the most powerful banks, insurers and money managers in the City of London are increasingly concerned that Cameron’s gamble could allow the country’s $2.5 trillion economy, the world’s sixth largest, to slip out of the EU.
TheCityUK, whose members include asset managers, banks, insurance and accountancy firms, warned that Britain outside the EU would be shorn of influence, less attractive to investors and vulnerable to regulations over which London had no influence.
“This is yet more powerful evidence that the UK pulling out of the EU is the very last thing our country needs. It will kill our hard earned recovery … We will be left isolated in the margins and our future prosperity will be limited for generations,” Chief Secretary to the Treasury Danny Alexander said in a speech on Monday.
“This rigorous and in depth work clearly shows that leaving the EU will lead to higher prices, higher unemployment, lower growth and lower real wages,” Alexander, a member of pro-EU junior coalition party the Liberal Democrats, said.
London dominates the $5-trillion-a-day foreign exchange market, trading twice as many dollars as the United States and more than twice as many euros as the entire euro zone, according to the lobby group.
“Continued EU membership is essential to this country’s economic wellbeing,” said Gerry Grimstone, Chairman of TheCityUK group. “Our research clearly shows that leaving the EU would seriously damage economic growth and jobs in the UK.”
A growing number of banks, including Goldman Sachs, Citi and JPMorgan, have warned a “Brexit” could hurt London’s position.
Opponents of the EU say Britain would do better to trade with the world from outside the bloc. Opinion polls show voters are split on the issue, with 40 percent wanting to remain in the EU and about the same proportion saying they would opt to leave.
Law firm Clifford Chance said its research showed that under five possible scenarios for Britain leaving the European Union, the financial services sector – which accounts for about a 10th of Britain’s gross domestic product – would be harmed.
“The success of the UK financial services industry is to a large extent built on EU Internal Market legislation. To abandon this for some untried, unknown and unpredictable alternative would carry very significant risks,” said Malcolm Sweeting, a senior partner of Clifford Chance.
“The UK is a powerful player in the EU and should retain the capacity to push for reform as a member,” he said.
While Cameron has pledged to hold a referendum if he wins in 2015, the opposition Labour Party has said any Labour government would be unlikely to hold such a vote this decade.
(Additional reporting by Kylie MacLellan; Editing by Andrew Roche and Sophie Walker)