* Johnson deal reduces chance of close trade ties with EU
* Think tank predicts 6% hit to UK per capita income from
Brexit
* Trade deals with other countries unlikely to cover EU
losses
(Adds fund manager and financial services comment, context)
By David Milliken and Mark John
LONDON, Oct 17 (Reuters) - Britain will be on course for
more distant economic ties with the European Union, making the
country poorer, if Prime Minister Boris Johnson wins
parliamentary backing for the Brexit deal he clinched with
Brussels on Thursday.
Compared with the deal his predecessor Theresa May reached
last year - which parliament rejected three times - Johnson's
deal aims for less regulatory alignment with the EU, and greater
trade barriers between Britain and its largest trading partner.
Johnson now faces a fight to convince parliament, where his
Conservative Party lacks a majority, to approve the deal in a
vote due to take place on Saturday.
"Even if Boris Johnson does manage to close the deal,
investor celebration of this might soon be dampened by the
recognition that this is a fairly hard Brexit," said Paul
O'Connor, a fund manager at Janus Henderson.
Britain's finance ministry and almost all external
economists have forecast that increased trade barriers will
cause the British economy to grow more slowly than if it were to
stay in the EU, and the damage increases as trade barriers rise.
Based on what was known of Johnson's plans last week, UK in
a Changing Europe estimated that they would make Britons more
than 6% poorer on a per capita basis than staying in the EU -
equivalent to 2,000 pounds ($2,570) per year in the medium term.
May's deal would have reduced income by just under 5% per
head, while a so-called no-deal Brexit - which would leave
Britain trading purely on World Trade Organization terms - would
lower incomes by just over 8%.
"This is more damaging than Theresa May's Brexit in terms of
economic impact," said Anand Menon, UK in a Changing Europe's
director.
Menon said he did not think these estimates needed to be
changed significantly, based on the final deal reached on
Thursday. He expected Johnson to push back against the 'level
playing field' requirements on regulatory alignment that the EU
wants to be a condition for a close future trading relationship.
By contrast, the opposition Labour Party has said it would
seek a closer trading relationship with more alignment with EU
rules on the environment and worker protections if it was in
charge of talks after Britain left the EU.
If Britain leaves the EU on Oct. 31, as scheduled, Johnson's
agreement ensures a transition period lasting until at least the
end of 2020 during which there will be no big economic change.
This period can be extended until the end of 2022, while
Britain and the EU negotiate a new trade arrangement with fewer
shared rules and new restrictions on cross-border trade in goods
and services.
FINANCIAL MARKETS
Financial markets have reacted positively to the deal, as it
lowers the risk of a disruptive no-deal Brexit.
But Dean Turner, an economist with UBS Wealth Management,
said that although it might give a brief fillip to British
growth, there was too much uncertainty about the longer-term
trading environment to revive moribund business investment.
"I wouldn't be getting the flags out just yet," he said. "I
think we will see a little bump in activity, but not anything
that will be meaningful enough to get the UK out of a weak
growth trend."
The Centre for European Reform estimated that Britain's
economy was already nearly 3% smaller than it would have been if
it had voted to stay in the EU in June 2016's referendum.
While the bulk of the Johnson deal was seen as largely the
same as that agreed between the EU and May, analysts noted that
May's aspirations for a close future trading arrangement had
been watered down in the political declaration accompanying it.
Whereas the May version aspired to "as close as possible" a
future trading relationship with the EU, that line was replaced
by merely "ambitious" in the revised text.
"Theresa May's deal would have ended up in a softer
arrangement than just a free trade agreement," Alex Stojanovic
of the Institute for Government said.
"This government appears to want an FTA and that is very
different: that means there would still be regulatory barriers
particularly in goods between Great Britain and the EU."
Rachel Kent, a financial services lawyer at Hogan Lovells,
said the original political declaration already tied regulatory
alignment to market access in a future UK trade deal with the
EU, Britain's biggest financial services customer.
But the revision made this more explicit, she said. British
regulators have said they do not want to become 'rule takers'
rather than rulemakers after Brexit, increasing the chance of
divergence and barriers between British and EU financial
services markets.
Stojanovic added that Britain's new freedom to sign its own
bilateral trade deals around the world was unlikely to offset
the lost economic activity.
"If the UK did a deal with everybody ... it would benefit in
15 years the UK GDP by 0.2%. Most free trade agreements do not
benefit GDP very much."
($1 = 0.7779 pounds)
(Additional reporting by Huw Jones; Editing by Giles Elgood and
Catherine Evans)