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No-deal Brexit would hit the UK economy and raise living costs, government report warns

Key Points
  • The Department for Exiting the EU (DExEU) on Tuesday afternoon issued the status update on government preparations for such a scenario, including the implications for specific sectors as outlined in several case studies.
  • The costs of customs compliance would be particularly onerous for British businesses, the report suggests, with the administrative burden for firms that are unused to such interactions estimated at £13 billion ($17.3 billion) a year.
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A British government ministry focused on the U.K.'s departure from the European Union has reiterated a warning that the country's economy could weaken as much as 9 percent over a 15-year period, unless a binding withdrawal settlement between the two sides is agreed that provides trading continuity.

The Department for Exiting the EU (DExEU) on Tuesday afternoon issued the status update on government preparations for such a scenario, including the implications for specific sectors as outlined in several case studies.

Earlier in the day, Prime Minister Theresa May had for the first time in months promised lawmakers an opportunity to explicitly rule out a no-deal scenario in a parliamentary vote by March 13, though senior members of her government continue to insist that it remains a possibility.

The embattled leader has faced a rising chorus of voices — within both political and business spheres — to prevent any sudden severing of Britain's myriad security and economic ties with the world's largest trading bloc.

The consequences of such a rupture, as summarized by DExEU civil servants in Tuesday's report, include an economy that — over a 15-year time horizon — could be between 6.3 percent and 9 percent smaller than would be the case if current trading conditions were maintained.

The costs of customs compliance would be particularly onerous for British businesses, the report suggests, with the administrative burden for firms that are unused to such interactions estimated at £13 billion ($17.3 billion) a year.

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Political analysts and lawmakers of all stripes have repeatedly accused the prime minister of shifting her earlier stance, quoting her oft-proclaimed insistence that "no deal was better than a bad deal," as a major plank her purportedly hardline approach to the European Commission in Brussels during early negotiations.

"Theresa May has increasingly moved from her previous position, around the general election of 2017," says Anand Menon, a professor of European politics at King's College, London, "because she's got to grips with just how bad 'no deal' will be."

Menon says the new DExEU statement may also, in part, be designed to win over wavering lawmakers that may be unhappy with May's deal — but are also opposed to the U.K. crashing out of Europe without new arrangements in place — by reminding them that they are "playing with fire."

The report explains that new border controls required for trade between the U.K. and EU countries would mean the flow of goods through major transit routes, including the Eurotunnel from France and Britain's largest shipping port of Dover, are "significantly reduced" for months after the U.K.'s exit.

LONDON, UNITED KINGDOM - FEBRUARY 13: Anti-Brexit supporters protest outside the Houses of Parliament in London as they call on MPs to rule out a no deal Brexit and demand a People's Vote on EU membership on February 13, 2019 in London, England.
Wiktor Szymanowicz | Barcroft Media | Getty Images

This would in turn mean less "availability and choice" of food products in British stores and the potential for higher food prices, because many food supply firms are still unprepared for any potentially expensive new trading arrangements.

The shortages or reduced choices would be especially acute if the departure deadline of March 29 is not extended, because of the seasonal nature of British food imports.

The report also outlines the potential costs to British consumers, with the European Union likely to impose high tariffs on meat products including beef (70 percent) and lamb (45 percent).

And for industries like auto manufacturing, the government release cited recent export data in an updated warning that 10 percent export tariffs on finished cars would impact the 42.8 percent of all British production that is sold into the other 27 EU member states.