FINANCIAL services giant Prudential has said that profits in its UK business could be negatively impacted by the UK’s withdrawal from the European Union after reporting pre-tax profits of £2.4 billion for the first half of this year.

While the group-wide figure represented a nine per cent rise on a constant currency basis, profits at the company’s UK and Europe arm – which is being spun out as standalone business M&G Prudential – rose by 4% to £778m.

At £487m, the bulk of that figure came from managing long-term products such as with-profits funds, with the sum rising by 1% compared with the same period last year.

In its first-half results, the firm warned that profits in that part of the business are likely to suffer as a direct result of Brexit.

“There is ongoing uncertainty over the terms under which the UK will leave the EU, in particular after the transitional period ending in December 2020 (which itself is yet to be agreed in a legally binding manner), and the potential for a disorderly exit by the UK without a negotiated agreement,” the company said.

“This uncertainty may increase volatility in the markets where the group operates and create the potential for a general downturn in economic activity and for further or prolonged interest rate reductions in some jurisdictions due to monetary easing and investor sentiment.

“While the group has undertaken significant work to plan for and mitigate such risks, there can be no assurance that these plans and efforts will be successful.

“A significant part of the profit from M&G Prudential’s insurance operations is related to bonuses for policyholders declared on with-profits products, which are broadly based on historical and current rates of return on equity, real estate and fixed income securities, as well as Prudential’s expectations of future investment returns.

“This profit could be lower in a sustained low interest rate environment.”

As announced earlier this year, Prudential is in the process of demerging M&G Prudential into a separate business that, like the existing group, will be listed on the London Stock Exchange.

More than half that business’s 3,000 UK employees are based in Scotland, with 1,400 working at its pensions-focused base at Craigforth near Stirling while a further 200 are employed in its wealth solutions business in Edinburgh.

Prudential chief executive Mike Wells said that “good progress” had been in separating the business, with the process expected to complete at the end of 2019. It is expected that both Prudential and M&G Prudential will be big enough to be included in the FTSE100.

“Our planned demerger of M&G Prudential from the group, which will result in two separately listed companies, each with its own distinct investment prospects, demonstrates our commitment to creating shareholder value,” Mr Wells said.

M&G Prudential is expected to be assigned half of Prudential’s debt when the demerger completes. At the end of June the group had total debt of £7.6bn.

Following the demerger the Prudential group will be made up of the business’s operations in the US, Africa and Asia. In the six months to the end of June profits at the Asian arm rose by 14% to £1bn, with Mr Wells noting that Asia drove performance overall.