Brexit Could Hit Financial Sector: Report

BlackRock (NYSE: BLK - news) , the world's biggest fund manager, has warned that a UK exit from the European Union is likely to see a reduction in the size of the UK financial services industry.

It (Other OTC: ITGL - news) said quitting the EU would "cut into the financial industry's major contribution to the UK economy, tax revenues and trade balance".

This would offset potential savings on Government spending from leaving Europe, a report by the US firm said.

BlackRock said that after a UK exit, the EU could push hard to standardise financial services and markets rules "to the detriment of a UK financial industry dependent on single market access".

The UK's financial, insurance and pension services sector currently enjoys a trade surplus of £18.5bn but the challenges that it faces after an exit could see that eroded, the report said.

BlackRock outlined one scenario, under which the UK could be excluded from a "passport" framework that is crucial for the those looking to sell or advise on investment funds within the EU.

It could mean European investors looking to access global markets through Britain having to take their business elsewhere – citing Dublin, Paris and Frankfurt as likely beneficiaries, as well as financial centres in the US and Asia.

However it was also possible that the UK could remain in the framework, meaning "business as usual" for many as the UK would mirror any EU legislation – though without having any say in the rule-making process.

The report also said the UK would have reduced clout in negotiating trade deals and that a Brexit could pile pressure on the pound and UK-focused shares.

There may be a further cut in interest rates or revival in the Bank of England's money-printing quantitative easing stimulus programme.

BlackRock Vice Chairman Philipp Hildebrand said: "Our bottom line is that a Brexit offers a lot of risk with little obvious reward.

"We see an EU exit leading to lower UK growth and investment, and potentially higher unemployment and inflation. Any offsetting benefits look more amorphous and less certain, in our view."

The warning comes as ministers clash over a Government study warning that if the UK leaves the EU, UK firms with supply chains in Europe would suffer.