The U.K.’s fixation with getting a deal with the European Union that covers financial services may be an error, according to a new report.
Research by The UK in a Changing Europe, a London-based think tank, shows that financial services are likely to be among the least affected by a no-deal Brexit because they are already highly globalized and don’t depend greatly on markets in the European Union.
Instead, services ranging from professional and scientific to administrative and technical, will face disruption, with industries such as fisheries, chemicals and motor vehicle manufacturing risking the loss of as much as 36 percent of activity, the report said.
“While financial and manufacturing services are very important, the U.K. government’s emphasis on securing special UK-EU agreements for City-based financial markets may be misplaced,” said Professor Raquel Ortega-Argiles of the University of Birmingham, who led the research.
There’s more: “The sectors that are going to be hardest hit by a no-deal Brexit are a range of services industries. They are parts of the economy who don’t lobby Westminster and rarely get the attention they need.”
Services account for about 80 percent of the U.K. economy and the trade balance in those sectors — 28.2 billion surplus in November last year, according to the Office for National Statistics — helped pay for a 34.4 billion-pound deficit in goods.
Exports of financial services in 2016 were a net 77 billion pounds, according to TheCityUK, the industry lobby group.
Crashing out of the EU without a deal in place will send services reeling, with as much as 140 billion pounds ($199 billion) and 2.5 million jobs either vulnerable or at risk across all industries. However, the impact on the financial side will be much more muted, the researchers found.
Ortega-Argiles and her team created a Brexit risk-exposure index based on extent to which U.K. industries depend on trade with the EU. This was carried out under a no-deal scenario, with trade severely disrupted, and under a so-called hyper-competitive scenario in which U.K. industries rapidly returned all imported activities from the EU to domestic production.
Research led by Meredith Crowley, a Cambridge University trade economist, found that in a no-deal scenario about one third of U.K. exports to the EU would be tariff-free, while 47 billion pounds of exports to the EU would face “high tariffs and/or the risk of restrictive quotas or antidumping duties.” The exports facing high tariffs and quotas are in high value-added sectors, Crowley’s research found.