Even if the UK loses a quarter of its international financial sector as a result of Brexit, it will still be double the size of any other European business centre, according to new research which highlights the extent to which the City’s dominance gives Britain a point of strength in negotiations over its future relationship with the EU.

The UK is the world’s second-largest financial centre, the study by think-tank New Financial found, behind the US and ahead of China and Japan.

The UK’s financial sector is nearly three times as large as those of either France or Germany, New Financial found.

“The potential impact of Brexit on the City of London has intensified the debate around the relative strengths and weaknesses of different financial centres around the world,” said William Wright, New Financial managing director. “While the UK should not be complacent about its dominant position as a financial centre in Europe, Brexit is unlikely to change things anytime soon.”

UK chancellor Philip Hammond last month told a group of business leaders that “preventing the wholesale movement of regulatory capital into Europe was key” in shoring up the country’s economic outlook after Brexit.

Competition to lure Europe’s finance businesses is heating up as the negotiations over Brexit prompt many financial services firms to reconsider their geographical locations.

In a speech on Tuesday at Frankfurt’s stock exchange, Angela Merkel addressed the question of how to position Frankfurt as a financial hub for European finance after Brexit.

Germany’s finance minister Olaf Scholz recently called for a “reappraisal” of the country’s industrial policy, arguing that the country’s banks are too weak to support its corporate sector.

While many businesses have announced staff relocations and new office openings, no single European city has gained a clear advantage — financial firms have scattered among a handful of business centres including Frankfurt, Paris, Amsterdam, Luxembourg and Dublin.

As a result, some finance industry figures fear that Brexit is causing their industry to fragment, forcing banks to split up the pools of capital that until now have been concentrated in London.

New Financial’s study measured the scale and value of financial activity by location around the world, including the banking, pensions and insurance sectors, the equity and bond markets, and asset management, investment and hedge funds.

It looked at the size of both the domestic market and international financial activity.

The report also looked at qualitative factors such as political stability, the legal environment and quality of life; on these metrics the UK performed significantly worse than other European countries, although it still outperformed rivals France and Germany.

Switzerland topped the qualitative rankings, with Luxembourg, Ireland and Denmark also ranking highly.

The UK was 11th, while Germany was 14th and France was 20th.

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