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The report, which outlines the difficulties the U.K. is likely to face when negotiating future trade relations once it leaves the bloc, states the 4 percent loss would occur if the U.K. is forced to rely on its World Trade Organization membership only for trade relations.
While free trade deals with the bloc could mitigate some of the loss, the advantages of Britain being a part of the single market lies in the “elimination of barriers to trade in a way that no existing trade deal, customs union or free trade area achieves,” according the report.
“There is all the difference in the world between ‘access to’ and ‘membership of’ the single market,” Ian Mitchell, a research associate at the IFS, said in a statement.
The most significant barriers to trade are in the areas of licensing and regulatory constraints, the report states. This is especially pertinent when it comes to service exports, which represented more than 40 percent of U.K. exports in 2015.
So-called passporting rights allow Britain’s financial institutions to export services in Europe. “But outside the EU, single market membership also comes at the cost of accepting future regulations designed in the EU without U.K. input,” Mitchell said. “This may be seriously problematic for some parts of the financial services sector.”