The City of London must be stripped of one of its most lucrative businesses when Britain leaves the European Union, the French finance minister has told Sky News.

In comments which will be seen as a further escalation of Brexit tension between Britain and its European partners, Michel Sapin said that London's clearing operations, which involve the processing of euro transactions from around the world, could no longer remain in the UK.

"There will be consequences [to Brexit]," said Sapin. "But one thing is sure, no one in the Eurozone will accept that the main clearing place will be outside the European union.

"So there will be activities that are taking place in London that will only be able to take place on the territory of the European union.

"And from that point of view Paris is extremely well placed taking into consideration its current capacities to carry out these activities."

The question of where euro denominated securities and derivatives are cleared has been a hard fought issue, with Britain last year challenging a European Central Bank legal attempt to shift the activity to the eurozone.

The City of London dominates the clearing business, with around 70%of euro-denominated derivatives being processed in London, compared with only 11% in Paris, its closest rival. 

Sapin's comments come amid growing concern about the impact of the Brexit negotiations on the UK economy.

The pound has fallen to the lowest level since 1985, amid concerns that the departure from the EU will be tougher and more uncompromising than previously anticipated.

In overnight trading last night, sterling briefly dropped by 9%, dipping well below $1.20 against the dollar for the first time since 1985.

The Chancellor, Philip Hammond, will use his appearance at the International Monetary Fund's annual meetings in Washington to reassure his fellow finance ministers that the UK remains committed to a smooth transition. 

But differences remain between the UK and many of its continental partners. The Foreign Secretary, Boris Johnson, said recently that it was "baloney" that the UK could not enjoy continued membership of the single market while limiting immigration.

However, Sapin told Sky News that freedom of movement was sacrosanct, alongside the other "four freedoms" - free movement of capital, goods and services.

"That is make-believe," said Sapin of Johnson's comments.

(Sky News)