London Mayor Sadiq Khan has warned MPs that leaving the European Union without a deal on future trade relations would mean "catastrophe" for Britain's vital service sector.

Giving evidence to the House of Commons Exiting the EU Committee, Mr Khan said that business leaders were telling him that they wanted the Government to negotiate an "interim deal" to cover the period between Brexit and the introduction of a new trade relationship between the UK and EU.

And he warned that without reassurance of this kind, banks and financial institutions could move staff or headquarters to centres outside the EU like New York, Hong Kong, Singapore or Dubai.

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Mr Khan told the cross-party committee that fears of an immediate flight of jobs from London after the Brexit vote had not materialised.

But he noted that banks including UBS and JP Morgan had publicly discussed transferring thousands of staff out of the UK, while HSBC had said that it could move to Paris.

And he added: "I have had conversations in private with some in the sector who are worried.

"They have got plans for the possibility of a deal not being done in two years. Those with a presence in Europe say it takes between a year and 18 months to get up and go. Others without a presence in a European city, it would take two years.

"The point I make to colleagues around Europe is - don't assume hard Brexit benefits you, because if there is so-called hard Brexit, some of these banks and financial institutions won't go to Paris, Madrid, Brussels, Frankfurt - love them as we do - but New York, Hong Kong, Singapore, Dubai. So a hard Brexit doesn't benefit our European friends or London or the UK."

Mr Khan campaigned for Remain in the 2016 referendum, but said he accepted the result and was now working with the Government to ensure the best possible deal for London.

But he stood by previous warnings of "colossal damage" to the capital if the UK leaves the EU without a deal and is forced to fall back on World Trade Organisation rules, as Prime Minister Theresa May has said she will do if she is offered a "bad" deal by Brussels.

Asked if there was any deal which would be bad enough to make WTO arrangements preferable, Mr Khan said: "Of course there are circumstances where that would be the case - for example if a deal meant paying a massive cheque without the right benefits to us. That's a bad deal and no deal would be better.

"But in most circumstances, no deal means WTO terms, which means tariffs for goods, non-tariff barriers on services. When I speak to the service sector in particular, no deal and WTO terms equals catastrophe as far as they are concerned."

He urged Mrs May to be prepared to seek an interim deal to ensure there is no "cliff-edge" change in the business climate at the expected point of Brexit in 2019.

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"I don't see a downside to having an interim deal," said the Mayor. "It would be prudent.

"It could well be we reach a deal within two years, which would be fantastic. But an interim deal provides the clarity and certainty that businesses so desperately need."

Mr Khan warned that a dramatic cut in EU immigration to London would harm the capital's ability to generate wealth for the country.

With around 38% of EU migrants coming to London, the capital would not even be able to meet the labour demands of its construction sector if the Government hit its target of reducing net migration below 100,000, he said.

Pointing out that the capital voted to remain in the EU, Mr Khan said: "Not only do we need talented people and need immigration, but London voted that we want it as well...

"If we can't continue to attract talent it will have a large impact on our ability to be a wealth generator for our country."

Mr Khan said there was already evidence of some of London's one million EU nationals returning to their home countries because of uncertainty over their post-Brexit status.

He called on Mrs May to declare on the day she triggers Article 50 that she is offering "a cast-iron guarantee to all the EU citizens who are already here to streamline their permanent residency".

Evidence from the Chartered Institute of Personnel and Development suggested that a quarter of London employers had reported that EU staff were considering quitting the UK, with some planning to leave early in order to beat an expected rush as Brexit comes nearer.

Mr Khan warned of a "huge" impact on jobs in London if Britain loses "passporting" arrangements which allow UK-based financial institutions to operate across Europe.

"If we can keep financial passporting it is a real boon to us and I think we should try to do that," he said.

But the mayor warned of the danger of "contagion", with companies following one another in making the move away from London, if uncertainty about the future of passporting persists.

Even if a deal to preserve it is struck in 24 months' time, "banks can't wait that long", he warned.

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"If, in the next few weeks - post Article 50 being served - they have not got the reassurance that there is going to be an interim deal in two years and one day, they will start making plans to move some of their operations," he said.

"They don't want to leave. They love being in London, because of the technology, the talent, the finance, the legal services, our courts. They love that, but they will have no choice but to go, they have told me."

And he said other European cities are actively seeking to attract companies away from London: "There are missions on a weekly basis in London from Berlin, Dublin, Paris, Lisbon, Milan, courting businesses to go to their cities."