London’s status as a global financial center could be eroded should Britain vote to leave the European Union in a June 23 referendum, the International Monetary Fund warned Friday.
The global body that promotes financial stability said the city’s powerful financial services sector would lose clout because of the loss of so-called “passporting” rights. These rights allow professionals to work in any EU country, without seeking separate licenses in each of the bloc’s 28 nations.
Such rights are critical for Britain, because so much of its economy is based on services – particularly in financial fields like accounting, banking and tax consultancy.
The IMF assessment reinforced the Bank of England’s report on Thursday, which also warned that a so-called Brexit from the EU could push the economy into recession.
“A vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output,” the IMF said during its regular health check of the U.K. economy.
A decision to exit would mean that Britain would need to negotiate the terms of its withdrawal and a new relationship with the EU – a process that would take time. The IMF pointed out that there are EU-level trade deals with 60 non-EU economies, together with prospective arrangements with another 67 countries. Negotiations to address this would take time.
“These processes and their eventual outcomes could well remain unresolved for years, weighing heavily on investment and economic sentiment during the interim and depressing output,” the IMF said. “In addition, volatility in key financial markets would likely rise as markets adjust to new circumstances.”