EU exit could put at risk up to 100,000 jobs in financial services by 2020

Leaving the EU could put at risk up to 100,000 financial services jobs by 2020, according to a new PwC report.

Leaving the EU, implications for the UK financial services sector’ – commissioned by TheCityUK. A UK exit could also reduce the sector’s contribution to the economy (GVA) by 2020 by up to £12 billion (a reduction of nearly 10%), compared with a projection based on the UK remaining in the EU.

According to the PwC report, which analyses the potential economic impact on financial services under two possible exit scenarios[1] , the impact on the sector’s GVA over the short-term could largely be driven by the effects of uncertainty, particularly while the terms of an exit agreement were being negotiated. This may be reflected through increased credit risk, could lead to higher financing costs and potentially even further sterling depreciation. The report flags the risk of firms’ investment plans being delayed, or that firms might invest in alternative European financial hubs, which could lead to lower investment in the financial services sector and knock-on risks to the UK economy as a whole.

Chris Cummings, Chief Executive, TheCityUK, said,

Major firms from across the world come to London to access Europe’s Single Market, bringing with them jobs and investment. While Brexit may not be ruinous for the UK economy, it does risk damaging the UK-based financial services sector, particularly over the short-term, delaying investment decisions and reducing activity. It also threatens the overall competitiveness of the UK as a place to do business.

PwC’s analysis for TheCityUK offers a view that while under both exit scenarios the financial sector would continue to grow, the value of its activity would be lower in 2030 than if the UK remained in the EU. Similarly, although it estimates sector jobs and activity would gradually recover from the initial shock, by 2030 there may still be up to 30,000 fewer jobs and potentially up to £5 billion less financial services GVA.

Andrew Sentance, Senior Economic Adviser at PwC, said,

Financial services are vitally important for the UK economy - generating jobs, income, investment and exports. Finance and insurance generated £65bn in export earnings for the UK last year, nearly £2,500 per UK household. Alongside other key trading sectors in the UK economy, this contribution is at risk if our trading relationships with Europe and the rest of the world are disrupted by leaving the EU. The UK could recover some of the loss by striking new trade agreements with our EU partners and other countries, though this is not guaranteed and would take some years to negotiate. In all the scenarios we have examined, the financial services industries will be less successful for at least a decade if the UK leaves the EU.

Mr Cummings concluded,

Business has an important role in ensuring people right across the country are armed with the facts and the consequences of the referendum outcomes before they cast their vote. The vote on the future of the UK’s membership of the EU on 23 June is a once in a generation event and given that financial services is part of an industry that employs nearly 2.2 million people right across the country and contributes more tax than any other sector, we must and will play our role.

[1] The two possible scenarios modelled are an FTA scenario, in which the UK negotiates a free trade agreement with the EU; and a WTO scenario, in which the UK trades with the EU on the World Trade Organisation’s Most-Favoured-Nation basis. Other possible exit scenarios are considered but not modelled. In light of the uncertainties inherent in economic modelling, PwC notes that its estimates should “only be taken as indicative of the broad direction and magnitude of the potential economic impacts of alternative UK exit scenarios”.