With Britain's negotiations on the terms of its departure from the European Union set to begin on Monday, the country risks skills shortages and losing business if it ends freedom of movement without a new plan for attracting workers, the report by the National Institute of Economic and Social Research and the Chartered Institute of Personnel and Development said.
Brexit Secretary David Davis leads a nine-strong negotiating team to Brussels today calling for a "deal like no other in history" with greater access to the single market than any of the EU's external trading partners and more freedom for United Kingdom goods and services than Turkey enjoys as a member of the customs union.
Mr Barnier also wants to get to grips with the Irish border in the early phase but Dublin would prefer to wait until there is greater clarity from London on what it wants, that is if the government actually knows.
"The fact they are coming and that they agree to talk about the subjects that we set out, shows that the clash is under control", a senior European official told AFP on condition of anonymity.
Britain seems to have tacitly accepted the EU's plan for sequenced talks, which will focus first on the terms of Britain's withdrawal, with negotiations on a future relationship and trade deal coming later.More news: Moto Z2 specifications leak, SD 835, 4GB RAM and more
"Sitting down for a first formal negotiation round is something in and of itself", an European Union source told AFP.
May herself will also have a chance to update the other 27 European Union leaders on her Brexit plans at a summit in Brussels on Thursday.
"Now, the hard work begins".
Threats by Britain to walk away without a deal have also anxious European capitals.
Before the election, Ms May proposed a clean break from the European Union: leaving its single market, which enshrines free movement of people, goods, services and capital, and proposing limits on immigration and a bespoke customs deal with the EU.
"The UK will remain a committed partner and ally of our friends across the continent", Davis said.More news: Why Ronaldo Wants To Leave Real Madrid
The sensitive issue has been thrown into further doubt by May's efforts to seek a deal with Northern Ireland's ultra-conservative Democratic Unionist Party to stay in power after the British election.
No deal would be "very, very bad" for Britain, Hammond said, but worse would be a deal "deliberately structured to punish us, to suck the lifeblood out of our economy".
With her predecessor David Cameron having resigned after his Brexit referendum defeat past year, Theresa May's days as British Prime Minister are probably numbered too as it is unlikely the Tories will want her leading them into the next general election. The talks are starting on time despite chaos in London after Prime Minister Theresa May lost her parliamentary majority this month after a disastrous election result.
Speaking to the BBC's Andrew Marr, the Chancellor said leaving the European Union also meant opting out of the bloc's trading arrangements.
The question of whether in the end we stay in the customs union is one that we need to address when we get to the end of the negotiating process because it will depend on what level of access we've got to the Single Market.More news: Exchange rates stable despite Fed rate hikes
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