The week has turned into a high stakes episode of Deal or No Deal as the UK financial services sector has been warned that a Brexit on WTO terms is now looking ever more likely.
The ongoing COVID BI coverage battle may have dominated the early part of the week but a warning from the Bank of England to the country’s banking sector has put the cat amongst the pigeons in the City.
“It is fundamental to the Bank of England’s remit that it prepares the UK financial system for all risks that it might face,” it said the short statement. “In performing that role, the Governor meets the leadership of UK banks on a very regular basis. As we have said previously, the possibility that negotiations between the UK and EU over a future trading relationship might not conclude in a deal is one of a number of outcomes that UK banks need to prepare for over the coming months.”
EU and UK negotiators are continuing their virtual discussions but the stumbling block over access to UK fishing waters has seen them continue to flounder, despite the EU reportedly having said that current levels of access to the seas around the UK could be reciprocated by current financial services passporting rights.
This though has been dismissed out of hand and the date at which UK Prime Minister Boris Johnson said the country would simply walk away if no progress was made is fast approaching.
The UK in a Changing Europe group yesterday issued a report on the current issues facing the UK services sector. Services contributed 81% to the country’s economy in 2019, or around 30 million jobs.
Professor Sarah Hall, senior fellow at The UK in a Changing Europe, and author of the report, Services and Brexit, said the key question underpinning the UK’s negotiation strategy for services is the extent to which the government chooses to privilege regulatory autonomy over EU market access.
“For sectors that rely heavily on single market access, such as financial services, this would lead to a marked change in export strategy,” she explained. “The government regards regulatory autonomy as central to its plans to open up new global markets for UK services. Quite what those might look like we do not yet know.”
“Both the May and Johnson Governments have paid a lot less attention to services than to the fisheries and manufacturing sectors,” she explained. “Key issues for the negotiators have been around access for goods and the physical barriers and borders. These are often simpler than the issues facing services which require regulatory adjustments.
“The UK seeks regulatory independence that will allow it to open up new global markets for services, but where these markets are has yet to be explained. The EU does not believe access can be cherry picked.”
Prof. Hall added that the UK have stated they are looking for a deal similar to that between the EU and Canada and as such she had compared the UK requests with the Canadian agreement.
“While there are very many similarities between the UK position and the Canadian agreement, the UK goes further in some services areas such as access for film and television services and the ability for professionals such as lawyers and accountants to operate within the EU.”
The wish for visa free mobility between the EU and UK is also above and beyond the Canadian model but Prof. Hall said such movement is seen as vital for the services sector as it would impact the ability for UK professionals to work in Europe for short periods of time and the tourism industry.
The UK is the second highest exporter of services in the world, only behind the USA and the report said the issue for the EU may well be the reliance it has on the City for liquidity, a reliance which may well grow in the coming months as the impact of COVID-19 on the economy may we increase.
While insurers have been working hard for three years to ensure that are ready for a no deal scenario, Nicole Sykes, head of EU negotiations at the Confederation of British Industry (CBI) warns that the pandemic puts further pressure on both sides to come up with a workable solution.
“It is important that the negotiators do what they can as we will be fighting to claw back every percentage of growth when we come out of the COVID crisis,” she explained.