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The Economic Consequences of a No-Deal Brexit

The Economic Consequences of a No-Deal Brexit

“The economic threat of a “no-deal Brexit” has risen with the approaching deadline  of 31 December 2020 for the trade pact between the United Kingdom and European  Union” 

What is No-Deal Brexit? 

After UK’s initiated Brexit on 31st January, 2020,the agreement of withdrawal  provided the new trading arrangement for 11 months and extended the United  Kingdom during this transition, membership in the EU customs union and single  market. If no resolution is made on time, what is dubbed a no deal Brexit would  trigger. In that case the trading ties between the UK and the EU are, by implication,  regulated by the World Trade Organisation’s trade laws. The abrupt transition into  WTO laws would increase tariffs and other trading constraints significantly, increase  the cost of imports and making legislation more difficult, significantly increasing  company profits and regulatory burdens. Brexit’s non-deal would have a big effect in  the UK, triggering an estimated 8.1% decrease in its GDP after 10 years.  

No-Deal Brexit will simply mean that import tariffs are levied on the goods of each  other and that trading becomes more expensive and complicated. As a consequence,  market costs for products and the UK are expected to increase. In the event of  shortages or disruptions at ports, stores already store such long-lived products. 

Impact on Overall Market 

Strategists, analysts and economists have been analysing the economic effect of  Brexit on Pound (GBP), the Gross Domestic Product (GDP), foreign direct  investment (FDI), land prices and commodity prices for several years back, if not the  last four years after in June 2016 the Brexit referendum. 

The Trades Union Congress study states that no agreement has a negative effect on  UK GDP anywhere in the long run on up to 10%. Up to 2% of GDP might  immediately be impacted. Any decline on this magnitude of economic size would  have substantial consequences on employment, salaries and public sector funding.  Moreover, a range of sectors have little effect on any contract, but because of tariff  and non-tariff barriers, utilities, agricultural food, production (pharmaceutical and  automotive), research, technology and R&D cannot feel any deal easily and acutely. An increasingly fragile social services sector for adults is in danger of collapsing due  to higher inflationary costs. The paper entitled Operation Yellowhammers indicates  that it is possible that small suppliers and big suppliers would collapse within a span 

of 2-3 months after a contract. 

Impact on Employment 

In November the United Kingdom’s “Budget Responsibility Office” or OBR,  producing the Government’s economic estimates, reported that while Brussels and  London can negotiate to an agreement, a longer-term production loss of about 4% in  contrast to the UK remaining in the European Union is likely to result in their recent  trade ties with the UK. However, the Brexit agreement will slash production by  2% by 2021 or about GBP 40 billion and placed more than 300,000 unemployed by  the second half of next year under the OBR. Furthermore, at a moment when the UK  is still facing a rising crisis in employment and is experiencing the biggest recession  as a consequence of the pandemic for 300 years. 

Lower Productivity 

The OBR knows it is not the only one in the forecasting business. Nor does it have  the best track history for this, Brexiteers points out. Therefore, 13 additional studies  have been conducted in the last four years on the effects of a “no deal” Brexit. The  average is 4% below the growth trend projected within the European Union with a  non-tariff agreement from the EU. This raises to 6.1% for no contract or tariffs.  

The reasons are partially that employment and enterprises have been losing initially  and more costly entry to EU markets threatens its economic model. More  significantly, lower efficiency has been accomplished over time, with lower economic demand and less control from the most productive EU firms and, consequently, lower market spending. 

Hike in Food Price 

The average tariff will be 23% for UK food goods with lamb farmers facing high  export taxes of 45%.According to George Eustice; the Environment Minister, the  price of food entering into Britain will also increase. In an interview he said that  

tariffs could add almost 2% to food costs. According to customs reports, about 71%  of the UK’s value imports of beverages as well as food are imported from the  European Union. In the absence of an arrangement, one of the UK’s main grocery  chains, Marks & Spencer warned last month about a possible rise in food prices. 

UK Future Situation 

The hope is that the United Kingdom will enter improved trading agreements beyond  the EU. It is less possible that the UK government is faced with violating the  Northern Ireland protocols. It would be perhaps more difficult to get some to say that  Britain is almost as good as their word in the talks.

Numerous agreements have been signed to date which ensure that existing  agreements with countries like Morocco, Israel, Canada and South Korea continue  following December 31. There are negotiations on new plans for exchanging fishing  supplies with Iceland and Norway.

Author: Gbenga Teejay Okunlola

London, UK