Election means 'new game' of Brexit negotiations for the City

By Anjuli Davies and Andrew MacAskill

LONDON (Reuters) - Large banks are planning to step up their lobbying of the British government as they sense an opportunity to change its priorities in the upcoming Brexit negotiations, John McFarlane, who chairs the UK's main financial lobby group, told Reuters.

Prime Minister Theresa May's shock loss of her parliamentary majority in last week's election increases the likelihood the government will listen to calls to retain some British access to the European Union's single market, said McFarlane, who is chairman of Barclays as well as TheCityUK.

"I do think it is a new game because it's a new political landscape and different political influences," McFarlane said in an interview in his office at the Barclays headquarters in the capital's modern Canary Wharf financial district.

He said financial firms may look to engage with a wider array of political actors such as the Scottish Conservatives, who are pushing for the economy to be at the heart of the government's strategy for Brexit, as well as an emboldened Treasury.

Business leaders complained before the election that they felt excluded from the Brexit decision-making process and accused the government of pursuing anti-business policies, including pledges to cap immigration and leave the single market.

McFarlane said although the chances of a so-called softer Brexit, including a staggered exit from the EU and more relaxed immigration controls, have increased, so too have the chances of a chaotic Brexit because Britain now has a minority government.

"The hope has risen, but I also think the difficulty has risen," he said. "We don't know who is calling the shots, where is the political power between the ministries and the other parties."

McFarlane said the idea of Britain's main political parties engaging in cross-party talks to forge a common approach on Brexit, discussed in recent days, is workable.

"After the war Britain was rebuilt with an all-party coalition," he said. "We have done it before on important matters and this is an important matter."

When asked if he thought it was possible that Britain could remain in the single market, he said "it has opened up all sorts of possibilities" and that if a referendum on whether to stay in the EU was held today it may produce a different result.

Although McFarlane is chairman of one of Britain's largest companies and the most powerful financial services lobby group, he said he had never met May and described the levels of engagement with business under the last government as "weak."

"You can't ignore them (business), a major slug of the economy, where the wealth is created," he said.

By contrast McFarlane praised the performance of opposition Labour Party leader Jeremy Corbyn, a veteran socialist, saying his election campaign was "bang on".

He said the surge in support for left-wing policies meant businesses would need to work on how they interact with this support base.

"Business also needs to have a societal tone to it because ordinary people have spoken out and they are finding it hard," he said. "That is who is calling the shots at the moment".

British finance minister Philip Hammond has the chance to revive his calls for a more business-friendly exit from the EU when he addresses an annual gathering of London's financial elite later on Thursday.

McFarlane said much of the finance industry's lobbying remains focused on convincing European officials that they should give financial services a special deal to continue to operate unrestricted across the single market.

The election of Emmanuel Macron as French president, a deeply pro-European figure, was largely seen as a reinforcement of the European project and that may make it harder to get a deal as in order to prevent further disintegration of the bloc, Britain would need to be punished for exiting, he said.

He said banks need to focus on achieving an outcome that will help the economies in Britain and the EU.

"There is this foundation for this meeting of minds here if people are sensible," he said.

(Editing by Adrian Croft)