Companies in Britain and the European Union face an extra 58 billion pounds ($80 billion) in annual costs if there is a no-deal Brexit, with Britain’s vast financial sector set to be the worst-hit industry, according to a report on March 12.
Firms across the EU’s 27 countries other than Britain will have to pay 31 billion pounds a year in tariff and non-tariff barriers if Britain leaves the bloc without a deal, the report by Oliver Wyman management consultants and law firm Clifford Chance said.
In return, British exporters to the EU will have to pay 27 billion pounds a year.
“These increased costs and uncertainty threaten to reduce profitability and pose existential threats to some businesses,” the report said.
Britain is due to leave the EU next year after voting in favor of ending more than four decades of political, economic and legal ties with the world’s largest trading bloc.
In the absence of an agreement, trade between Britain and the other 27 EU members would default to World Trade Organization rules and tariffs, a sharp contrast to the access the UK has enjoyed as a member of the EU’s single market.
Although Britain wants a deal, the government says it is preparing for any outcome, including the chance that Britain could crash out of the bloc without a deal. It has set aside 3 billion pounds to prepare for all eventualities.
If Britain stays in a form of a customs union it would reduce the costs for both sides by about half, the report said.
However, Prime Minister Theresa May has ruled out keeping Britain in an EU customs union because it would prevent the country from striking its own trade deals with fast-growing economies such as China and India.
The March 12 report showed 70 percent of the extra costs in Britain from a no-deal Brexit would be shared by five industries: financial services, cars, agriculture and food and drink, consumer goods and chemicals and plastics.
Financial services firms in Britain would suffer the biggest hit because, unlike some automotive and aerospace firms that can switch to domestic suppliers of components, they will have to set up new operations in the EU to continue serving clients.
Goldman Sachs and UBS said last week they were starting to transfer some bankers to Frankfurt in preparation for Britain’s exit from the EU.
The Bank of England has warned that about 10,000 finance jobs may leave Britain by the end of next year because of Brexit.
However, top U.S. investment banks are currently planning to hire far more people in London than anywhere else in Europe.
In the EU, the hardest hit sector would be the automotive sector, agriculture and food and drinks, chemicals and plastics, consumer goods and industrials, the report said.