"An active M&A market is all about confidence and credibility," Michael DeFranco, global chair of M&A at Baker & McKenzie, said in a report.
"To restore that confidence the U.K. government will need to get to grips with the enormous challenge of negotiating a new trading relationship with the EU as quickly as practically possible. Otherwise we move into more dangerous territory," he added.
The forecasts above are based on an adverse scenario where Brexit incites growing populism in mainland Europe and undermines EU support among remaining members.
In Baker & McKenzie's central forecast, Brexit still knocks $239 billion off U.K. M&A activity by 2020 and $409 billion off global volumes. In 2017 alone, U.K. M&A transactions are seen falling by 33 percent.
"In the last few days we have seen evidence that the M&A market in the U.K. won't come to a crashing halt even if it won't be at its previous pace," Tim Gee, London M&A partner at Baker & McKenzie, said.
"There are still plenty of buyers and sellers for the right deal at the right price. There are already some clear upsides — global organizations looking to acquire U.K. companies will find that a weaker pound makes U.K. valuations more attractive, although the uncertainty surrounding trade negotiations could deter the more risk averse," he added.
Baker & McKenzie said stock market listings (IPOs) would be hit by the Brexit vote.
"The picture for IPOs is equally depressed, as these flows tend to be even more sensitive to confidence effects than M&A transactions, so the U.K. market is likely to remain relatively quiet over at least the next couple of years," it warned.