Japan, US warn Theresa May of Brexit fallout as G20 summit begins

UK Prime Minister Theresa May has had a difficult start to the G20 summit as President Barack Obama said the UK would not be the priority for a US trade deal and Japan issued an unprecedented 15-page warning about the consequences of Brexit.

The June decision to leave the 28-country EU sent financial markets into shock in anticipation of a recession as Britain enters a years-long process of tearing itself away from its biggest trading partner and forging a new global economic role.

May had been hoping to pitch the UK as a global leader in free trade during her first major outing on the world stage at the G20 summit in Hangzhou, China, but instead, she was immediately warned about the consequences of leaving the EU and diplomatic tensions with the Chinese over her concerns about their involvement in UK nuclear power.

After her first bilateral meeting with Obama, May was warned that the US wanted to focus on trade negotiations with the EU and a bloc of pacific nations before considering a deal with the UK.

Japan subsequently warned May that its exit from the EU could see a string of Japanese financial institutions to relocate from the UK unless some of the privileges that come with access to the single market are maintained.

In a 15-page report published on the eve of a summit of the Group of 20 big economies in China, a Japanese government task force formed to respond to "Brexit" also warned of a possible outflow of drug research and development investment from Britain, though it said it expected the British government to handle its exit from the bloc smoothly.

About half of Japanese investment in the EU comes to the UK, including from companies such as Nissan, Honda, Mitsubishi, Nomura and Daiwa.

“Japanese businesses with their European headquarters in the UK may decide to transfer their head-office function to continental Europe if EU laws cease to be applicable in the UK after its withdrawal,” the report concludes.

It says: “In light of the fact that a number of Japanese businesses, invited by the government in some cases, have invested actively to the UK, which was seen to be a gateway to Europe, and have established value-chains across Europe, we strongly request that the UK will consider this fact seriously and respond in a responsible manner to minimise any harmful effects on these businesses.”

Earlier, Obama had promised to work hard to stop “adverse effects” of Brexit and assured the UK there was still a “very special relationship” between the two nations.

But he also raised the risk of some trading relations unraveling and made clear that it “would not make sense to put aside” existing negotiations with big blocs of countries in order to do an immediate deal with the UK.

Asked whether he stood by his warnings against Brexit and claim that Britain would go to the back of the queue when it comes to trade deals, Obama repeated his belief that the world would benefit from the UK being a member of the EU.

Obama’s warning comes after May herself said there would be “difficult times ahead” for the economy after leaving the EU.

The prime minister said the economy was in better shape than some had predicted following the vote for Brexit. Nevertheless, May predicted that the vote would damage the economy and said the government would continue to monitor economic data in the coming months before setting out its fiscal response to protect the economy later this year.

“I won’t pretend it is all going to be plain sailing. There will be some difficult times ahead. We will be looking ahead to the autumn statement. So in terms of how we are going to position things, the detail will be coming out then. What I’m clear about is I am going to continue as we have done in government over the last six years ensuring we are going to live within our means.”