The City is shifting to a new focus on best possible access to Europe's Single Market, rather than pinning hopes on continued membership of the trading bloc, as it prepares for the Prime Minister to announce a so-called clean Brexit tomorrow.
In a much anticipated speech, Theresa May is expected to make clear the UK’s willingness to quit the Single Market in order to regain control of the country's borders and forge new trade deals.
Since the referendum, the City has warned of the need for continued access to the Single Market. However, the tone has shifted in recent months, away from one which was fighting tooth and nail for rights like passporting to one that is more open to other options.
"The fact that we have had Philip Hammond and David Davis standing together and talking about the need for transitional arrangements has done the politics of Brexit for the City a power of good,” said Iain Anderson of lobbying firm Cicero. "That has done an awful lot to calm nerves, and now a lot of the conversations are about best possible access to the Single Market."
Passporting - a complex set of rights allowing firms in the UK to do business in the EEA and vice versa - was conspicuous by its absence in a financial and professional services wish-list published by industry group TheCityUK last week. The group is also understood to be carrying out a study into the effects of regulatory equivalence, which is due to be published later this month.
“We want maximum access...and actually a comprehensive free trade agreement between the UK and the Single Market may lead to a better outcome for everybody,” said Shanker Singham, chairman of the Legatum Institute Special Trade Commission.
Meanwhile, Allie Renison, head of Europe and trade at the Institute of Directors, stated firms would have been “kidding” themselves if they hadn’t been considering a departure from the Single Market a possibility.
Chancellor Philip Hammond revealed yesterday that he is prepared to go all out to make the UK more attractive to international business in the event of unsatisfactory negotiations with the EU.
Hammond used an interview with German newspaper Welt am Sonntag to warn that “If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term.
"In this case, we could be forced to change our economic model and we will have to change our model to regain competitiveness." Hammond added "you can be sure we will do whatever we have to do. The British people are not going to lie down and say, too bad, we’ve been wounded. We will change our model, and we will come back, and we will be competitively engaged.”
May's speech comes as a report from think tank Policy Exchange calls on her to go public with plans for a so-called clean Brexit, including departures from the EU’s trading blocs.
Critically, this would grant the UK control of issues like border control, while also allowing for focus on trade deals for specific sectors, including the City.
Writing the foreword to the report, former chancellor Nigel Lawson said: “That, in common with the rest of the world, we should be outside both the so-called Single Market and the Customs Union, is incontrovertible. This is not a ‘hard’ Brexit: it is Brexit.”
Asked if the City had made peace with Brexit, report author and economist Gerard Lyons, a former advisor to Boris Johnson, echoed the view that firms had come round to the realities of quitting the EU. "A lot of the City wasn't fully prepared for the Brexit vote, or at least had not thought through a strategy if the country was to vote to leave," Lyons said.
"But as time has gone on more and more firms have started to develop their plan, and they have started to see things in a new way."
The City will likely take some comfort from leaked European parliament minutes, which cite EU chief Brexit negotiator Michel Barnier calling for Europe to maintain a "special" relationship with the London and the UK's financial markets.
The comments echo those made by the Bank of England governor last week, with Mark Carney telling the influential Treasury Select Committee a badly constructed Brexit deal with no transition period “would be greater for Europe than the UK”.
Although a spokesperson for the European Commission said the minutes did not “correctly reflect what Barnier said” and the man himself has since taken to Twitter to clarify that his comments were in relation to equivalence , a source at meeting told the Guardian, which first published the news, the minutes were “more or less accurate”.
Additionally, a Brexit research group, formed from both Remainers and Leavers, has today argued that any ill-thought through attempts by the European Central Bank (ECB) to snatch euro-clearing out of the UK might wind up damaging Europe’s markets.
In its second report, the Financial Services Negotiation Forum (FSNForum) notes a clampdown by the ECB could make it look like it's trying to build “fortress Europe”, potentially provoking “tit for tat” retaliation from other markets.
“The EU should not rush to make a decision on this topic as a political backlash to Brexit,” said Anthony Belchambers, chairman of the honorary advisory council of the FSNForum. “Yes, the ECB's systemic risk concerns, following the global financial crisis, are understandable, but relocation of euro-clearing to the Eurozone also carries potential risks for market economics and the international standing of the euro.”