Bank of England Governor Mark Carney has urged financial services firms to make plans that will enable them to stay in London despite the threat of potential obstacles to doing business springing up as a result of Brexit.
In a speech in London this morning he said: ‘Contingency planning is expensive, but don’t leave now. There are major advantages to being part of the world’s leading financial system. Yes there are costs to contingency planning but it would be extreme to take action.’
However Carney warned that financial firms in the City of London face a rocky two years before Brexit negotiations are complete.
Carney told City firms it would be the wrong move to head elsewhere because of Brexit.
The Governor, who wrongly predicted recession after the Brexit referendum, highlighted the upheaval leaving the European Union is causing.
He said: ‘Whatever is agreed, there are risks to financial stability both in the transition to the new relationship and the new steady state.’
‘These risks include disruption of services, a weakening of investment banking profitability and the potential for greater complexity in firms’ legal structures.’
Carney also stated that he wants to see a free trade agreement with Europe put in place at the end of the Brexit negotiations, reiterating the Government’s stance.
Failing to do so and turning inwards could hit households, growth and jobs in the UK and globally.
He said: ‘The net result would be less reliable and more expensive financing for households and businesses, and very likely lower growth.’
‘We are at a fork in the road. The high road leads to more jobs, sustainable growth, and better risk management across the G20.’
The City of London will remain the best place in the world for financial companies to do business but firms need to plan for Brexit.
‘But there is another path – the low road – where trust and cooperation diminish, fragmentation hardens, capital flows are disrupted, and trade and innovation are curtailed.’
Nevertheless Carney was upbeat about a free trade agreement being reached.
He said: ‘The EU and UK are ideally positioned to create an effective system of deference to each other’s comparable regulatory outcomes, supported by commitments to common minimum standards and open supervisory co-operation.
‘Such an outcome would be entirely consistent with the UK Government’s stated aim of a new, comprehensive, bold and ambitious free trade relationship with the EU that embraces goods, services, and network industries.’
He also said he was working hard with the European Union to make sure UK banks can keep passporting and their equivalence rights.
He added: ‘We are technocrats and we are working behind the scenes to keep all options open.’
Financial services accounts for 7 per cent of output in the UK and 1 million people work in the sector, contributing £70billion, or 11 per cent, of annual tax revenues.