Financials to leave UK during lengthy Brexit talks, says JP Morgan

Multinational financial services firms will start to relocate outside Britain during Brexit negotiations due to regulatory uncertainties, with the talks themselves dragging on economic growth, JP Morgan said on Wednesday.

In an analysis of the post-Brexit landscape, the merchant bank said the UK government to trigger Article 50 of the Lisbon Treaty, which starts the formal exit process, by the end of this year.

It added that would most likely have to accept restricted access to EU goods and services which would weaken economic growth as talks extended beyond the two year time frame for exit.

"However, our base case is that the hit from EU exit will demonstrate itself as a persistent drag on a positive growth rate, rather than generating an ongoing contraction," JP Morgan said.

"We expect there to be clear evidence of multinational operations shifting the location of their activity out of the UK given the regulatory uncertainties. Financial services are among the sectors that will be most exposed to this process."

"Even if the UK begins to signal that it will compromise on other priorities in order to secure 'full' access to the single market in financial services, there is a clear risk that euro-denominated activities relocate to within the EU simply to ensure continuity of relationships."

JP Morgan also said there would be “pressure to hold a new referendum on Scottish independence”, with Scotland out of the UK and establishing it's own currency before Britain left the EU in 2019.

Beyond negotiations with the EU, the UK would also have to renegotiate trade deals with more than 50 countries that it dealt with through its EU membership. There would also have to be a reworking of its membership of the World Trade Organisation for the same reason.

Non-EU trading partners would want to see the detail of the UK’s relationship with EU before considering bilateral agreement with the UK.

“It is likely that the UK’s access to non-EU markets will become markedly more constrained in the wake of the EU exit for a period of years. And to the extent that the UK is able to secure quick deals, it is unlikely they will be on terms which are advantageous to the UK.”

"The UK starts from a position where it does not have a deep well of resources and experience within the civil service to deal with trade issues. The UK’s negotiating position in these discussions is also likely to be very weak."

"The simultaneous loss or scaling back of such a large number of trading relationships upon EU exit is likely to be a blow to UK exporters, meaning the need to get a successor deal is more urgent for the UK than for our trading partners."