LONDON – Companies in the United Kingdom and the European Union face an extra £58 billion ($80 billion) in annual costs if there is a no-deal Brexit, with the U.K.’s vast financial sector set to be the worst-hit industry, according to a report issued Monday.
Firms across the EU’s 27 countries other than the U.K. will have to pay £31 billion a year in tariff and nontariff barriers if the U.K. leaves the bloc without a deal, the report by Oliver Wyman management consultants and law firm Clifford Chance said.
In return, U.K. exporters to the EU will have to pay £27 billion a year.
“These increased costs and uncertainty threaten to reduce profitability and pose existential threats to some businesses,” the report said.
The U.K. 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 the U.K. and the other 27 EU members would default to World Trade Organization rules and tariffs — a sharp contrast to the access the U.K. has enjoyed as a member of the EU’s single market.
Although the U.K. wants a deal, the government says it is preparing for any outcome including the chance that it could crash out of the bloc without an agreement. It has set aside £3 billion to prepare for all eventualities.
If the U.K. stays in a form of customs union that would reduce the costs for both sides by about half, the report said.
However, Prime Minister Theresa May has ruled out keeping the U.K. 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.
Monday’s report showed 70 percent of the extra costs to the U.K. from a no-deal Brexit would be shared across five industries: financial services, cars, agriculture and food and drink, consumer goods, and chemicals and plastics.
Financial services firms 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 the U.K.’s exit from the EU.
The Bank of England has warned that about 10,000 finance jobs may leave the U.K. 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 sectors would be automotive, agriculture and food and drinks, chemicals and plastics, consumer goods and industrials, the report said.