Brexit is going to cause bigger rises in the cost of living for households outside London, a new study suggests.

The report by the IPPR think tank found a 'hard' Brexit – in which the UK leaves the European single market and customs union – would push average household expenditure up by around 2.7% in London and 3%-3.2% elsewhere in the UK.

In the event of a 'soft' Brexit, which allows the UK to maintain close trading ties with the EU, the impact would be about 1.5% in the capital and 1.7% in the rest of the country, it said.

The report said any reduction in prices from any new trade deals struck by the UK after it leaves the EU would only 'partially compensate for Brexit-induced price increases'.

It found that the cost of living impact of Brexit will be felt less by Londoners because they spend a greater proportion of their income on housing, which is not expected to be greatly affected, and less on transport, which takes up a bigger slice of household spending in the rest of the country.

High-paying industries, such as finance and chemicals, are expected to suffer more negative economic impacts from Brexit, but a number of lower-paid sectors are also expected to be hit, the report found.

Report author and IPPR senior research fellow Marley Morris said: 'Our findings suggest that post-Brexit price rises will squeeze incomes more in parts of the UK outside London.

'Limiting these impacts will require a new relationship with the EU that preserves our trade links. Negotiating a 'shared market' – based on a customs union and a deal on alignment with the EU's single market – is the most promising strategy for minimising post-Brexit price increases for households.'

Responding to the IPPR report, a spokesman for the Department for Exiting the EU, said: 'It would be in neither the UK nor the EU's interests to see new barriers to trade, and the deal we strike must work for all parts of the United Kingdom.'