London, at the heart of the UK’s service sector economy, may lose up to £9.5bn in economic output a year from Brexit. This it could be worse if a post-Brexit deal on financial services doesn’t eventuate, research out this morning finds.

Financial services, which were carved out from the post-Brexit trade deal between the UK and the EU, may account for more than £2bn in lost GDP per year.

Mayor of London Sadiq Khan has today published an analysis of the Government’s Brexit trade deal from a London perspective by the Centre for Economics and Business Research (CEBR).

The wider services sector, which includes everything from law, finance and fintech to hospitality and creative jobs, makes up 80 per cent of the UK’s economic output.

London accounts for nearly half of the UK’s export earnings from services.

Since 1 January, 2021 The City has relied on a patchwork of bilateral financial services deals with member states, while a Memorandum of Understanding on financial services is worked through.

Khan said of the CEBR’s prediction for London: “Whichever way you slice it, the Government’s Brexit trade deal was the equivalent of a ‘no deal’ Brexit for financial and professional services, and our businesses now face a costly red tape mountain caused by the UK having to trade with the EU as a ‘third country’”.

The mayor is currently lobbying Number 10 to agree with Brussels a deal for financial services grants UK firms’ greater access to EU markets, so long as the two territories stick to equivalent regulations of financial services.

“For the good of London and the UK’s economy, the Government should have been focussed on getting a deal that protected these industries – and this report reveals the staggering losses that London could face as a result of the trade agreement,” Khan said.

“These losses could be even higher if the Government fails to secure additional agreements with the EU on hugely important areas of regulatory equivalence.”

Josie Dent, managing economist at CEBR said: “Our research highlights the large impact that Brexit has had on the services sector in London. With financial services and associated professional services accounting for 15 percent of London’s GDP, the success of this industry is key to facilitating economic growth in the capital”.

However, other London grandees are less fazed by the lack of comprehensive cross-Channel services deal.

Last week, Barclays Boss Jess Staley said the UK should look beyond job losses from London to Paris and Frankfurt and instead compete with the US and Asia.

“I think Brexit is more than likely on the positive side than on the negative side,” he said

“What the UK needs and London needs is to make sure that the City is one of the best places, whether in terms of regulation, law, language or talent.”

“What London needs to be focused on is not Frankfurt or Paris; it needs to be focused on New York and Singapore.”

Dame Helena Morrissey, the Tory peer and former investment boss at Legal & General said many economic predictions of the City post-Brexit assumed dealmakers and business would “stay static” without EU access.

“Of course that’s not how the City operates! It has been innovative and never relied upon the EU for that innovation and its global perspective”.

“If we don’t get a deal we will see regulatory divergence (the Bank of England has already made that clear) and there will be great opportunities from that.”

Although Dame Helena suspects there will be a UK-EU deal on financial services, “the talent, the infrastructure, the ‘cluster’ remains in London and that is what we need to keep offering what the world needs in financial services”.