In March 2017 the UK government will apply for Article 50 of the Lisbon Treaty to end its membership in the European Union. This unprecedented step follows the June 23, 2016, UK referendum on the country’s exit from the European Union (dubbed Brexit), the results of which surprised many economists. Business leaders had warned about the negative effects of EU departure on the UK and European economies, and specifically on the City of London. Senior bankers threatened to leave the City if Brexit took place, because it will deprive UK-based financial institutions of free access to EU clients and markets.
The City of London may lose up to £18 billion in revenue and up to 30,000 jobs by leaving the single market (Oliver Wyman 2016). The analysis in this brief suggests that these estimates account for about 15 percent of financial sector revenue and 3 percent of employment in the City. Other estimates show similar magnitudes: £14–20 billion in revenue and 70,000 jobs lost (PWC 2016) or 83,000 jobs lost (EY 2017). According to these estimates, for the City of London the direct negative effect of Brexit on the financial sector will be a 12–18 percent loss of revenue and a 7–8 percent drop in employment, clearly significant effects.
In macroeconomic terms the initial effects of Brexit on the country’s financial sector are modest: UK GDP may shrink by 0.5 percent and employment by 0.2 percent. These estimates are smaller than those predicted by the government prior to the referendum. In April 2016 the UK Treasury predicted declines of £38 billion in revenue and up to 230,000 jobs in the financial sector as a consequence of Brexit. These effects may materialize in the longer term.