Global banks could quit London if Britain votes to leave the European Union, the ratings agency Standard & Poor’s said on Tuesday, as it warned a so-called Brexit would pose a risk to the growth prospects of the UK economy.
Half of all the foreign direct investment into the financial services sector comes from the EU, the ratings agency said.
While London would remain a leading global financial centre, global banks could look elsewhere for their European bases because they would no longer be able to use the city as their passport to trade across the EU.
Some banks are already starting to move their European bases to Dublin. US bank Citigroup is moving its European retail banking headquarters to the Irish capital to reduce its cost base. HSBC, Britain’s biggest bank, is also reviewing whether to keep its global headquarters in the UK and has warned about its concerns about the UK leaving the EU.
The UK government has pledged to hold an in-out referendum on EU membership by the end of 2017. Earlier this month, S&P warned it was more likely to strip the UK of its coveted triple A rating as a result of the referendum. S&P is the only agency to still give the UK its top notch rating.
The agency is concerned that the UK would find more difficult to attract inward investment if it leaves the EU.
In its latest analysis of the implications of an EU exit by the UK, S&P’s credit analyst Frank Gill said: “We believe it could significantly dent the U.K.’s current net trade surplus in insurance and financial services of more than 3% of GDP”.
“However, the extent of this impact will crucially depend on what alternative free trade arrangements the UK government could agree with its European partners in the event of an exit,” said Gill.
Domestic banks could feel the impact of any slow down in the UK economy.
But the ultimate impact of a UK exit from from the EU would depend on the trading relationship that the government negotiated instead.