Brexit: Let's hope 'the land that gave us common sense' secures a trade deal with the EU

Postcards showing the British Union flag, also known as Union Jack, sit on display at a souvenir store near to the Elizabeth Tower, also known as 'Big Ben', in London, U.K.
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The prospect of the U.K. and European Union failing to secure a trade agreement after Brexit negotiations would be "unthinkable" and we can only live in hope that common sense prevails in the end, the deputy director at an influential Brussels-based think tank told CNBC on Wednesday.

"(From the EU's perspective) the U.K. cannot be seen to be doing better outside the EU (but) we must remember this is the U.K. we are talking about, this is not the archetypal enemy of the EU… we are still friends right?" Maria Demertzis, deputy director of Bruegel, told CNBC via phone on Wednesday.

U.K. Prime Minister Theresa May warned European leaders in January that no deal for Britain would be better than agreeing to a "bad deal" at the end of the two-year negotiating process. May has since secured the right to activate article 50 and begin the formal procedure of leaving the bloc although the market consensus is for Downing Street to wait until the end of March to do so.

"In Brussels, there are other priorities right now (such as European elections), and so we need to wait for governments, hopefully sensible ones, to be in place both in France and Germany. I just hope that the land that gave us common sense can prevail in the end… we can but hope," Demertzis added.

In the absence of an agreed trade deal, Britain would default to the tariffs and rules imposed by the World Trade Organization (WTO), which critics have warned would be disastrous for the U.K.

EU will not be intimidated

European Council President Donald Tusk moved to dismiss claims from the U.K. government that the country would sooner leave the European Union without a deal rather than sign one it deemed substandard.

"The claims increasingly taking the form of threats that no agreement will be good for the U.K. and bad for the EU needs to be addressed," Tusk told European Parliament on Wednesday.

"A no-deal scenario would be bad for everyone, but above all for the U.K. because it would leave a number of issues unresolved. We will not be intimidated by threats and I can assure you they simply will not work," Tusk added.

The U.K.'s Brexit minister David Davis admitted on Wednesday that the government had not yet analysed the economic impact of Britain leaving the EU without a new trade deal. Davis argued to a parliamentary committee hearing that the prospect of a 'no deal' outcome was not as frightening as people feared.

EU can live without a trade deal

"It's easy for me to see U.K. trend growth fall to 1.5 percent or lower from its current pre-Brexit rates of 2.2 percent (in the absence of a trade deal)," Kallum Pickering, senior U.K. economist at Berenberg, told CNBC in a phone interview on Wednesday.

"It would certainly be damaging for both (but) the EU can live without a trade deal," he added.

British citizens were found to be overwhelmingly against the government's suggestion they could divorce the EU without a trade deal in place, according to a BMG Research study published on March 7.

The poll showed twice as many Britons would prefer the U.K. to stay in the EU instead of leave the bloc without a deal.