No Deal Brexit: What’s the Cost?

According to OECD estimates, a no-deal Brexit will slice almost 3% from U.K.’s economic growth over next three years. A contraction of 1% in 2020 and a further 0.5% decline in 2021 and 2022.

Without a deal, the U.K. will descend into a recession in 2020. There will be trade loss, investment and technical knowledge drop and a fall in the pound up to 2022.

Lawrence Boone, OECD’s chief economist, said some of the downturn could be offset by extra public spending and a monetary stimulus by the Bank of England (The Guardian, 19 Sept 2019). But it is difficult to estimate how much this will mitigate the decline.

The British Government’s contingency plan code-named ‘Operation Yellowhammer’ suggests risks will include border delays, medical supply shortages, fresh food reduced, fuel shortages, rise in public disorder and community tensions. Refuse may be uncollected, children may miss exams and aged people will suffer due to gridlock on roads. A no-deal Brexit also means the transition period (time to respond to changes) will be off the table. Even with all the contingency planning leaving the EU without an agreement means disruption to trade, no protection of citizenship rights and the likelihood of a customs frontier in Northern Ireland.

An academic think-tank at King’s College, anticipates the U.K. economy will adjust to its new realities outside of EU, but over 10 years Britain’s income per capita will reduce by 3.7%-8.7%. New trade deals could boost GDP by 0.2%-0.7% in the long term. But the impact is rather small.

A report from UNCTAD in September, projected a no-deal Brexit could cost Britain at least USD 16 billion in EU sales and far more in indirect effects. The USD 16 billion is conservative direct effects and includes loss of USD 5 billion in motor vehicle exports, USD 2 billion in animal products and a further USD 2 billion in apparel and textiles.

The “loss” to Britain ranges from USD 16 billion for immediate impact to USD 52 billion (with all impact included) for the initial three years. And the converse is U.K.’s annual five-year average (2014 to 2018) net contribution to the EU was £7.8 billion (or USD 9.6 billion)

So Boris, the so-called savings of £39 billion (or £33 billion if U.K. departs on 31 October) in divorce bill is it worth it?

Reference:

1. Fact check: what will a no-deal Brexit will mean for the UK? 12 Sept 2019, The Week Business

2. No-deal Brexit will cut 3% off UK economic growth, says OECD, 19 Sept 2019, The Guardian

3. No-deal Brexit could be the ‘end of the beginning’ for the UK, research says, 4 Sept 2019, CNBC

4. The UK contribution to the EU budget www.ons.gov.uk

5. The EU "divorce bill" https://fullfact.org