EU referendum
The UK banking sector could suffer from a Brexit, TheCityUK said.Yves Herman/Reuters

Leaving the European Union would not be catastrophic for Britain's economy, although the competitiveness of the City of London's financial services industry would suffer as a result, an industry lobby said on Wednesday (9 March).

In a guide detailing the potential consequences of Brexit, TheCityUK, which lobbies for Britain's financial services sector, indicated that while a tailored financial agreement between Britain and the EU was possible, its content would be uncertain.

Should Britain choose to leave the EU on 23 June, the ensuing negotiations would be protracted and the UK might not end up securing the deal it wants, as the 28-country bloc could see Britain as a less-regulated "off-shore" centre and treat it as such.

"We haven't seen anything that gives the UK the same level of influence as membership," TheCityUK chief executive Chris Cummings was quoted as saying by Reuters.

Cummings added that in the event of a 'Leave' vote, the initial impact on the financial sector would still be limited, given Britain and the EU could enter a two-year negotiation period to thrash out a deal on exit terms.

"I don't think we would see a huge movement of jobs immediately, but what would worry me greatly is that foreign direct investment doesn't arrive," he added.

"I don't think all businesses that would leave the UK would end up in Paris or Frankfurt. I think quite a share would go to New York and Asia, with Europe as a whole losing out."

The lobby group warned that in the event of Brexit, European regulators might not allow European banks to maintain their current assets in London, if the two markets were to be subject to a different set of regulations.

Disruption to the financial sectors could deal a serious blow to Britain, given it accounts for 12% of the UK and its annual tax contribution of £66bn (€85.2, $93.6) makes it the biggest contributor to government coffers of any other sector.

Last week, the City of London publicly backed the 'Stay' campaign, while a number of US banks based in London, such as Morgan Stanley, have warned Britain's role as a financial centre could suffer a backlash should a 'Leave' vote prevail at the referendum.

On 1 March, John Wyn-Evans, head of investment strategy at Investec Wealth & Investment, voiced similar concerns over the future of Britain's banking sector.

"It is probable that banks would have to apply for new licences to operate on the continent, which would reduce the attraction for international banks to base their European operations in London," he said. "Any reduction in banking activity would have severe knock-on effects for London – both the economy and the real estate market."