Officials have warned that EU companies will lose out if Britain fails to get a special deal for the City of London

Britain has warned Brussels that thousands of European investment funds will be under threat if it refuses to bow to demands for a comprehensive trade deal with the City of London after Brexit.

Officials have begun laying out the risks to the EU of following the hardline approach towards the City that is being encouraged by the French.

The British “tit-for-tat” warning strategy is designed to highlight the damage that could be caused if Britain fails to get a special deal for the City. Such a deal was being resisted completely by Michel Barnier, the chief Brexit negotiator, until his approach appeared to soften last week.

At a meeting in Brussels, British negotiators told their EU counterparts that unless rules were drawn up to