LONDON, Nov 13 (Reuters) - If Britain does not agree a transitional arrangement with the European Union, it will be damaging for the economy and for Britain's financial sector, the Chairman of Royal Bank of Scotland said on Sunday.

The financial sector has been lobbying for an agreement designed to cover the gap between Britain completing its exit talks with the EU and agreeing a new trade deal with the bloc to prevent a "cliff edge" effect causing disruption.

"It is damaging if we don't get a transitional deal because I think you will then see banks and financial institutions making decisions on the basis of uncertainty," RBS Chairman Howard Davies told ITV.

"They are currently making contingency plans and once you have got a contingency plan there is a risk you might implement it one day and therefore I think that it is quite urgent."

Davies said he thought it was possible Britain would get a transitional deal because the EU's other 27 countries realised their companies could also be damaged by being unable to raise finance in London in the event of a hard break with the EU.

(Reporting by Kylie MacLellan; Editing by Elaine Hardcastle)