Deadlock over the size of the UK's so-called Brexit bill has triggered fresh alarm in the City as fears grow that crucial talks on a new UK-EU trade and transition agreement will be shunted into next year.
Bosses are warning that financial services firms will need to begin moving jobs and operations if they do not have clarity on a future UK-EU set-up by the end of December.
The UK had hoped to begin trade talks as soon as October, but during a tense press conference in Brussels, Brexit secretary David Davis and his EU counterpart Michel Barnier admitted little progress had been made on the financial settlement, although movement has been made on both citizens’ rights and the Irish border.
Barnier, the EU’s chief negotiator, said that the two sides remain “quite far from being able to say that sufficient progress has taken place” to begin discussing a new trade deal.
“It’s clear that the UK doesn’t feel legally obliged to honour its obligations,” he added, in reference to the so-called divorce bill. It is thought Brussels will accept nothing less than €60bn, while the UK does not want to go above €35-45bn.
Davis hit back, saying it was right for the UK government to “interrogate [the divorce bill] rigorously”.
The Brussels exchange set alarm bells ringing at home.
“The risk of no transitionary agreement seems to have increased today given the strong words from Barnier,” said Shilen Shah, a bond strategist at Investec Wealth & Investment.
A top City source with knowledge of the talks told City A.M. there is now a more than 50 per cent chance the October deadline will not be met. They added there is “a strong chance” the UK could end up walking away from talks.
“In my experience of negotiations at the EU level, you always have to be prepared to walk away,” said London Tory MEP Syed Kamall. “MEPs have often walked away from the table in negotiations and have seen talks resumed later.”
On the divorce bill debate, Open Europe director Henry Newman said: “Neither side wants to jump first but this is still a very strong hand for the UK – in legal terms, if we do drop out without agreement, the EU will get nothing at all, and they need it to make their figures work.”
However, City figures are keen for the government to agree an exit bill and push on with talks.
Catherine McGuinness, policy chairman at the City of London Corporation, told City A.M.: “In the interests of that long-term relationship I urge the government to find an agreed way forward sooner rather than later," adding: "haggling over every last penny may cost us more than we gain if it takes so long that businesses have had to move unnecessarily because of the uncertainty."