UK financial services could stand to suffer £40bn in lost revenue if the country becomes completely detached from the European single market, a report has warned.
According to analysis by global management consultancy Oliver Wyman, if the UK moves to a “third country” arrangement with the European Union, then severe restrictions could be placed on any EU-related business.
The report estimated around 35,000 jobs could be at risk and the UK could lose out on £20bn in revenue for business activity linked directly to Europe.
When taking into consideration the knock-on impact to the whole financial services sector, the report said companies might have to shift or close entire business units due to increased costs, which could almost double the effect of Brexit, meaning the country could lose £40bn in revenue.
This comes just weeks after a report from the Institute for Public Policy Research revealed the financial services sector had already suffered from an "uncharacteristic downturn" in the number of adverts for job vacancies in the two months after the Brexit vote.
Sir Hector Sants, vice chairman of Oliver Wyman and former chief executive of the Financial Services Authority, said: “It is in everyone’s best interests for there to be a positive outcome to the negotiations that is mutually beneficial to the UK and the EU.”
He said the unravelling of the UK from Europe should cause minimum disruption to the industry, and should benefit customers who have come to rely on the UK as a “skilled and connected ecosystem” for financial services.
The report, which was put together on behalf of lobby group TheCityUK, estimated that a Brexit which gives the UK access to the single market through passporting rights will only cause a modest reduction in UK-based activity.
In this more positive scenario, revenues are predicted to decline by up to £2bn, putting 4,000 jobs at risk.
Chris Cummings, chief executive at the Investment Association, said the report is an important reminder of the direct contribution of the financial services sector.
He also pointed out the asset management industry helps millions of UK citizens save for the long-term and funds British businesses as they invest and grow.
"The UK has a unique global investment industry exporting services to clients throughout the world - whether within the harmonised framework of the EU single market or beyond it.
“This will continue, and we will work with government on a trade and investment strategy that will ensure that the UK remains the pre-eminent global centre for investment."