The UK’s financial hub is likely to see losses in the early days of its break from the European Union but will bounce back in the long-term once trade deals around the world have been established, the report found.
The authors of the report conducted by Capital Economics said any lost opportunities on the continent could be offset by future chances to expand deals with non-EU countries.
Its positive outlook on the 10-year view for the UK mirrors that of eponymous manager Neil Woodford, who has increased his exposure to British firms this year on the back of positive economic signals.
In the report, ‘Brexit – where are we now?’, Capital Economics said: “The City of London will likely remain a hub of prosperity after March 2019.
“London’s pre-eminent position as a global financial centre predates the single market, and the City possesses intrinsic advantages, including Britain’s legal system, the English language, a convenient time zone perfectly placed between the working hours of Asia and New York, a large pool of skilled labour and a critical mass of expertise in support services such as accounting and law.”
However, the risk of the UK losing its position as the main euro-clearing centre, worth some £1.1bn to the economy, could signal a setback which sparks firms to move operations to Europe.
It predicted the majority of euro-clearing work would relocate to the continent by 2021.
The loss of passporting rights on the day of Brexit could also impact 10% of the revenue currently generated from European business, but asset managers and insurance would be safe from most of the fallout it said.
Despite the losses, the report added: “Even if exports to Europe do fall or some services relocate to the continent in the years ahead, these losses could be offset over the long term by the fresh opportunities to boost trade with non-EU countries.”
The UK would be free to negotiate bilateral trade deals outside the EU in areas such as Sharia-compliant central bank liquidity facilities, more support for emerging market wealth management and supporting offshore Indian rupee bond trading, green finance and fintech.
It predicted an average rate of expansion of 1.7% over the next 10 years despite “early moderate losses”.
