Its analysis said that a hard Brexit would have a particularly negative impact on the financial services sector, particularly banking, market infrastructure, asset management and insurance and reinsurance services.
It also reiterated warnings made last year that the City could lose up to 100,000 jobs.
Simeon Djankov, executive director of the financial markets group at LSE said, “Brexit will have negative effects for the City of London. The analysis here presents preliminary results to suggest that such effects will be substantial.
“The UK government’s reaction to leaving the single market may be to revisit some of its financial regulation in an effort to bring more investment. But such a policy move may trigger a regulatory race with other major financial markets, to the detriment of the global financial system.
"In the meantime, uncertainty surrounding the transition from the European Union and the possible changes in the regulatory stance of the UK government will be deterrents to new business.”
The report also said that financial services accounted for 25% of UK service exports to the EU, meaning the continued export of financial services to continental Europe will be essential for the viability of London as a financial centre.