The economic damage of a no-deal Brexit would be “two to three times” greater than COVID-19 over the long run, a think tank has warned.
A report by think tank UK in a Changing Europe warns of “significant disruption” if Britain’s government fails to strike a trade agreement with the EU before the Brexit transition period expires at the end of the year.
It sets out a string of potential headwinds facing the UK economy if no deal is reached, including:
UK manufacturers including carmakers risk becoming uncompetitive if likely EU tariffs force European importers to raise prices.
UK firms will face a “full panoply of checks and formalities” trading with the EU, with HMRC estimating a £15bn ($19bn) cost from filling in millions more customs declarations.
Just-in-time supply chains from retailers to carmakers to chemicals face “disruptive” border delays, risking cash-flow problems or pharmaceutical products becoming unusable.
Food price hikes are “highly probable” from new tariffs and other barriers to trade, in a damaging move for low-income households. One study cited suggested prices could rise by up to 4%.
The dairy sector in Northern Ireland faces “severe disruption,” with higher costs for exports to the Republic of Ireland for processing and then from Ireland to the UK market.
Older travellers may find it “harder and more costly” to travel, as European Health Insurance Cards will no longer be valid.
No agreement will be reached to preserve current access and co-operation on key sectors like aviation, transport, fishing, security and justice.
The UK’s financial services sector may face new barriers to European trade if the EU does not give the UK the go-ahead on data adequacy or “equivalence” rules.
Watch: What is a no-deal Brexit and what are the potential consequences of it?
The report highlights analysis by the think tank and London School of Economics (LSE) academics on the economic hit to long-term GDP from the coronavirus and from a no-deal Brexit.
The analysis said Bank of England forecasts suggest the economy will “recover quickly over the next 18 months” from the pandemic, and it will have “few, if any” long-term impacts on GDP despite the record decline in the second quarter.
By contrast the effects of Brexit “are expected to emerge slowly, but to be permanent.” It highlights the government’s own analysis, which suggests a no-deal Brexit would wipe 7.6% off GDP compared to existing trade arrangements over a 15-year period.
Watch: What is a V-shaped economic recovery?
Many analysts are less optimistic than the Bank of England about the damage caused by COVID-19, however, and discussion by policymakers of a “V-shaped recovery” raised eyebrows.
Professor Anand Menon, director of UK in a Changing Europe, said: “While the prime minister said no deal is a ‘good outcome’ our report shows that it may lead to significant disruption and will have a significant negative economic impact.
“As significant will be the political fallout of no deal, particularly with the UK and EU, but also inside the UK, particularly Northern Ireland, and internationally too.”