A ‘no deal’ Brexit would cost the UK four times more than the EU-27 and result in a “chaotic and severe” hit to its economy, experts from the UK in a Changing Europe think tank concluded in a paper published on Monday (3 September).
The 30-page analysis by the think tank warns that there are “a potentially infinite range of potential no deal scenarios, from an exit with no bilateral agreements in place to one that has a wide range of emergency deals on things from aviation to medicines.”
Striking a series of emergency agreements on a sector-by-sector basis would require the UK parliament to adopt between 800 and 1000 pieces of secondary law ranging from airline safety certificate to medicine testing.
But the paper argues that the UK’s major manufacturing and logistics firms would be most exposed to a ‘no deal’.
“The most obvious cases here are aerospace firms such as Airbus, major automobile manufacturing firms such as Nissan, Toyota, Jaguar Land Rover, BMW, Ford and Vauxhall, and automotive supply firms such as GKN,” it argues.
EU and UK negotiators have said that talks on the UK’s Withdrawal Agreement are 80% complete. However, the impasse over the Irish border question remains unresolved, and internal opposition within the governing Conservative party to Prime Minister Theresa May’s blueprint for future EU-UK relations could also derail the talks.
UK’s International Trade Secretary Liam Fox has claimed that ‘no deal’ is the most likely outcome of the Brexit negotiations, while both the Danish finance minister and Latvia’s foreign minister have rated the chance of a deal as ’50-50’.
In the short-term, the paper argues that extra spending or stockpiling by business and consumers in the weeks leading up to March 2019 might boost demand and be positive for UK GDP.
“Make no mistake, the impact of a no deal Brexit will be severe. In the short term at least, considerable uncertainty and disruption will result,” said Professor Anand Menon, director of The UK in a Changing Europe.
The paper also warns that the pound sterling would fall further and that the UK’s credit rating would likely be downgraded.
Meanwhile, UK citizens living in Europe would face ‘legal limbo’, without the guarantees that their government has offered to EU citizens living in the UK.
“While it is wise to plan for no deal, and indeed attempt to mitigate against the worst aspects of a chaotic Brexit, it makes far more sense to avoid such an outcome altogether.”
The UK government’s analysis has estimated that reverting to trading with the EU on WTO terms would reduce UK GDP by about 8% over the next 15 years. That would likely involve a rise in domestic food prices, with the meat sector and food processing show increases of 7.3% and 3.7% in retail prices respectively.
Although Brexit Secretary Dominic Raab played down the prospect of a ‘no deal’ scenario following the latest round of talks with EU counterpart Michel Barnier last Friday (31 August), both sides have stepped up their preparation for such an outcome. UK government departments published the first 24 of over 50 sectoral contingency plans for a ‘no deal’ Brexit last month, while the European Commission issued a 16-page guidance note to businesses and citizens in July, accompanied by 60 sectoral ‘preparedness’ notices.
UK MPs return from their summer recess for a month of parliamentary sittings that will be dominated by Brexit before the annual party conference season begins in late-September.
UK in a Changing Europe describes ‘no deal’ as an “extreme scenario” but adds that “politics can, as we know, sometimes produce profoundly suboptimal outcomes.”