The costs of Brexit for UK economy

Abstract

Leaving the EU without a deal in place for future trading agreements would be the worstcase scenario for British economy. In the long-run Brexit is expected to reduce UK living standards due to the declines in trade and foreign direct investments. The British economy will suffer from the losses implied in the export sectors due to the fact that 45% of its exports are destined to EU members. The potential loss of importance for the City of London will generate a fragmented European financial market that will reduce systemic risk. On the other hand, market participants could face a dual regulation on financial markets, increased uncertainties and frictional costs. The plan to design a Capital Market Union will create a strong competition for London, while Frankfurt and Paris are eager to absorb the financial services lost by British economy.

Keywords

• banking union
• financial markets
• financial services
• trade policy