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The Actuary The magazine of the Institute & Faculty of Actuaries

Financial services sector to be hit hardest in event of Brexit ‘no deal’

The UK’s financial and professional services sector would suffer most in a ‘hard Brexit’ scenario, according to independent economic analysis by Cambridge Econometrics.

'Hard Brexit' could hurt financial sector ©Shutterstock
'Hard Brexit' could hurt financial sector ©Shutterstock

It reveals that the sector could have up to 119,000 fewer jobs than otherwise would be the case if no deal were struck with the EU on the single market, customs union and transitional arrangements.

Commissioned by Mayor of London, Sadiq Khan, the analysis also suggests that the UK could receive £50bn less investment by 2030 and experience a “lost decade” of significantly lower growth.

“This shows why the government should now change its approach and negotiate a deal that enables us to remain in both the single market and the customs union,” Khan said.

“The analysis concludes that the harder the Brexit we end up with, the bigger the potential impact on jobs, growth and living standards.”

The findings show that a hard Brexit could result in 500,000 fewer jobs across the country, with London’s economy suffering significantly less than the rest of the UK, potentially widening geographic inequalities.

In the event of a ‘softer’ departure from the EU, in which Britain remains in the single market but leaves the customs union – the so-called ‘Norway’ option – the UK could minimise job losses to 176,000.

In this scenario, there could be 40,000 fewer jobs in the financial and professional services sector, with the country experiencing a loss of £18.6bn in economic output and £20bn of investment.

“This underlines the importance of getting a good deal that allows London’s financial and professional services the maximum two-way market access with the EU member states that they need,” City of London Corporation, Catherine McGuinness, said.

However, Institute of Economic Affairs (IEA) chief economist, Julian Jessop, has described the analysis as “fundamentally flawed” for its omission of the potential benefits of Brexit.

In a blog for the IEA, he wrote this might be because the benefits are too difficult to model, but added: “Similar difficulties have not prevented heroic assumptions about the potential costs.

“The outcomes after Brexit will depend on decisions which are yet to made. The UK government is increasingly recognising the importance of EU labour in key sectors, as well as committing to remain engaged with EU programs.”

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