City warns of EU exit danger after Corbyn win as investors fear 'Brexit' would knock the Footise

'No' vote in the EU referendum would drag the Footsie lower, say investors
Corbyn is believed to be anti-Europe, much to the delight of Eurosceptics

Published: 10:53 EST, 14 September 2015 | Updated: 10:57 EST, 14 September 2015

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Jermey Corbyn's Labour leadership election victory could push the UK closer to the European Union exit door, many in London's Square Mile believe.

Corbyn has previously indicated that he will campaign for a 'no' vote if Prime Minister David Cameron's renegotiations in Brussels were to result in a dilution of UK workers' rights and wage protections.

However with so many of his colleagues in the Labour Party firm supporters of Europe, it is likely he will offer his party a free vote on the issue. The referendum on whether or not the UK should stay in or leave the European Union takes place in 2017.

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EU referendum: With so many of his colleagues in the Labour Party firm supporters of Europe, it is likely he will offer his party a free vote on the issue

Societe Generale analyst, Michala Marcussen, said: 'One of the more pressing issues to our minds is what stance Labour will take on the EU referendum that Conservative Prime Minister Cameron has promised before the end of 2017.'

She added: 'Today, his attitude to the EU is best described as lukewarm and it is uncertain at this stage how he will campaign in the upcoming referendum.'

It comes as a latest retail investor survey revealed that it was neck and neck on the matter of whether the UK should remain an EU member.

Online trading platform, The Share Centre, said 50 per cent of investors polled were in the 'yes' camp and 44 per cent in the 'no' camp.

A quarter of respondents said they might change their vote as a result of Cameron's negotiations - although only 30 per cent believe he will actually succeed in obtaining any concessions.

But more importantly, investors emphatically believed a 'no' vote in the European referendum would drag the Footsie lower and cost them money.

Of the 1,500 retail investors polled, 63 per cent believed a 'no' vote would have a negative impact on the stock market, with 31 per cent so worried they have already deferred investment decisions before a possible 'Brexit.'

Share Centre chief executive Richard Stone said: 'The EU referendum and the potential uncertainty it may create is clearly of concern to investors.

'The fact that nearly one third of investors are already changing, or are planning to change, their behaviour in the run up to the referendum highlights the depth of that concern and the impact it could have on markets at a time when confidence is at best shaky.'

The survey also revealed a widespread belief that financial services regulation should be wrestled back from the EU and laws made at the national governmental level instead.

Today City figures have reacted with dismay to Corbyn's victory and, in-particular, his decision to appoint anti-capitalist John McDonnell as shadow chancellor.

McDonnell - who favours nationalising banks and sharp tax rises for businesses and landlords - was the stand-out name in Corbyn's initial cabinet line-up. Others include defeated leadership rival Andy Burnham as shadow home secretary and Hilary Benn as shadow foreign secretary.

The Footsie has remained largely immune to the Labour leadership election so far, but should McDonnell ever have a serious chance of entering Number 11 then alarm bells in the financial markets would ring. Currently there is the dangerous assumption in the Square Mile that Corbyn's election will keep the Conservative party in power for longer.

Labour heavyweight Charles Clarke spoke out against McDonnell's appointment this morning: 'I think the impact on the Parliamentary Labour Party will be quite serious. The shadow cabinet has to present itself as an alternative government.

'People like Hilary Benn in the area of foreign affairs can do that because they have credibility in their field – that's obviously not the case for John McDonnell.'

McDonnell - a Bobby Sands and IRA sympathiser- is seen as the perfect fit for throwback Corbyn, who himself wants to see the railways and utility sectors nationalised, on top of removing the private sector from public services.

Militant: Shadow chancellor - John McDonnell - favours nationalising banks and sharp tax rises for businesses and landlords

Perhaps Corbyn's wackiest policy includes forcing the Bank of England to boost the economy 'regardless of the effect on inflation,' by spending heavily on infrastructure projects financed with printed money.

Corbyn said recently: 'One option would be for the Bank of England to be given a new mandate to upgrade our economy to invest in new, large-scale housing, energy, transport and digital projects: quantitative easing for people instead of banks.'

Nigel Green, founder of financial advice company deVere Group, said: 'The victory of this hard-left socialist as leader of Her Majesty's Opposition is, I suspect, going to prove to be a major issue for global investors.

'So-called Corbynomics, whereby everyone would pay more tax to pay for hugely increased public spending, would backfire spectacularly.'

Jasper Lawler, at CMC Markets, added: 'Clearly The Labour Party are not in power but the small majority of The Conservative Party means there will be occasions where the party's new extreme left leader can influence policy.'

Mainstream business groups also issued cautious statements over the weekend, including the Institute of Directors. Director general Simon Walker said some of his policies would 'undermine our open and competitive economy'.

HSBC economist Elizabeth Martins warned that with so much noise around his victory, the City will have to be patient and wait and see what Corbyn truly believes.

She said: 'While the statistics bear out his views that inequality in the UK is high, spending cuts on public services have been sizeable and zero hours contracts have risen sharply, it remains to be seen exactly how his policies would work in practice.'

'The concern will be that his plans to increase spending not only reverse the improvement in public finances in recent years, but could potentially lead to higher inflation as well.'