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[LONDON] Britain's financial industry will be damaged if the country votes to leave the European Union, and the "Brexit" debate has already cost the UK some foreign investment, according to two of the nation's most senior corporate directors.
"There has already been some loss of investment," and "there will be more if we start to get into a position where it looks serious that we might leave," said Michael Rake, chairman of BT Group Plc. So-called Brexit would leave the City of London financial district in a "significantly worse" position, said Barclays Plc Chairman John McFarlane.
The two chairmen, speaking in separate Bloomberg Television interviews, joined a chorus of financiers and business executives warning a vote to leave the EU will prompt overseas banks to move jobs elsewhere. Prime Minister David Cameron, who faces euro-skeptic sentiment in his party as well as the country, has pledged to hold a vote on the UK's membership of the 28-nation bloc by the end of next year, and is currently negotiating a revised deal.
Pacific Investment Management Co on Thursday predicted uncertainty alone from a vote to leave would be enough to reduce gross domestic product by as much as 1.5 per cent in the subsequent 12 months and prevent the Bank of England from raising interest rates.
"While our central expectation would be the UK votes to remain part of the EU, we are aware of the considerable uncertainty around the result," Mike Amey, a London-based money manager at Pimco, told clients in a note obtained by Bloomberg.
New York would look to poach finance business from London, although turmoil in emerging markets has reduced threats from Singapore and Hong Kong, said McFarlane, 68. Speaking in his capacity as chairman of TheCityUK, he said a survey of the financial services lobby group's members found 85 per cent want to remain in the EU, while 4 per cent favor leaving.
"Our opinion is that the City will be significantly worse" because "the rest of the world wants Britain to remain in the EU," said McFarlane. "Foreign organizations use London as their main access to Europe, and we don't know what the impact of withdrawal will be." Earlier Vote "The one thing businesses can't handle is uncertainty and this has brought a significant amount," McFarlane said in his interview at the bank's London headquarters in Canary Wharf. "My own personal opinion is that there will be a successful negotiation that will probably be enough to get it over the line." Bringing the vote forward "would reduce the uncertainty," he said.
Rake, a former head of the Confederation of British Industry who also said he supports Cameron's efforts towards renegotiation, said it would be "hugely regrettable" to part with the EU because it would lead to a minimum of two years of uncertainty. "There is no easy option to an alternative to the EU; all the options talked about come with costs."
"We have had net significant investment in this country during this period of uncertainty because people are convinced common sense will prevail and we'll stay," said Rake, 67, who also chairs WorldPay Group Plc and was deputy chairman of Barclays until this year. "But there has already been some loss of investment, not huge, and there will be more if we start to get into a position where it looks serious that we might leave."
Their arguments clash with statements by the Leave.EU campaign this week, which argued the City has "everything to gain" from the UK leaving because London already leads the way in some global financial markets and "Brexit" would reduce regulatory burdens. Mark Astaire, one of Barclays's most senior investment bankers, told British lawmakers on Jan. 6 that the capital would "continue to thrive" even if the UK was outside the EU.
The Chairmen's comments are "scaremongering from people with vested interests and a poor track record of prediction when it comes to Europe," Brian Monteith of the Leave.EU campaign group said in a statement responding to the interviews. Fortunately they "only get one vote, the same as the rest of us, and this referendum is going to be decided on the basis of what serves the public interest, not vested interests."
Chris Grayling, the leader of the House of Commons, meanwhile became the first cabinet member to suggest he will oppose membership of the EU, saying that staying in the bloc on current terms would be "disastrous." Cameron aims to strike a deal on overhauled terms of UK membership with his fellow EU leaders at a summit in Brussels in February. Agreement then on the four key areas that Cameron is seeking to renegotiate, including contentious proposals to curb benefits for EU citizens in Britain, would allow a referendum as soon as June.
In Brussels, Jonathan Faull, the European Commission's coordinator for the renegotiation talks, told the European Parliament on Thursday that there is a "strong desire" to strike a deal although there are "still difficult issues remaining to be resolved."
Turmoil in Chinese stock markets, a crash in oil and other commodity prices and slowing emerging market growth have made Asia a less attractive place for banks and investment firms to relocate to, McFarlane said.
While conceding London would continue as a preeminent financial center if the country voted to leave, McFarlane said it would be far stronger within the union. "Part of the problem is talent goes where the money is, and business goes where the opportunities are," he said.