Speaking at the annual dinner for new “super-charged trade body” UK Finance, Hammond said progress had been made in negotiations after the first meeting of the Brexit Business Advisory Group earlier in the day.

He said an integral part of Brexit will be a time-limited interim period where the UK will have left the EU but will retain reciprocal access to EU markets.

This, he said “will provide certainty, and avoid a cliff-edge for business and individuals during the transition from the current structure of membership”.

Hammond added that the aim in negotiations is to maintain two-way access to markets for goods and services.

“A fragmentation of European financial service markets would result in poorer quality, higher priced services for business and citizens across Europe,” he said.

He added that fragmentation would push up fixed-rate borrowing costs for homeowners across the continent.

However the chancellor acknowledged that no existing trade agreement supports the scale of reciprocal trade in financial services that exists between the UK and the EU. He said the government will “seek a new paradigm” for the future trading relationship in financial services.

“We acknowledge that there are legitimate concerns among our EU colleagues about the oversight and supervision of financial markets here in the UK that are providing vital financial services to EU firms and citizens.

“We will address them by making forward-leaning proposals for greater transparency, cooperation, and agreed standards based on international norms,” he said.

Stephen Jones, UK Finance chief executive, said the renegotiation of the relationship between the UK and EU economies has “profound ramifications for retail and commercial banking customers in the UK and in the EU”.

Jones said the UK must continue its strong regulatory system: “We do not desire or need a bonfire of regulations – a frequent concern of our European partners that we must allay,” he said.

He added that UK regulation of EU firms serving UK customers should not be disadvantageous. “We must not revert to an insular and defensive mentality… unless we are prepared to see the same treatment for UK-based firms seeking to maintain their activities in Europe.”

Jones also said the industry must continue to address chronic housing problems, and consider how financial services, the government and the house building sector can work together to support the needs of  families.

“Yes, this is a period of uncertainty. But this shouldn’t make us short-termist. We should think now about the long-term opportunities on the horizon: for Brexit, for trade, for our customers,” he said.