Deal or not, the UK economy will pay a heavy price for Brexit

On January 1, the UK will move away from the EU, its main trading partner, leaving the single market and customs union that have benefited many UK businesses for decades.

While the extent of the damage will depend on the outcome of the ongoing negotiations between London and Brussels, economists expect Brexit to be economically painful.

The well-respected London School of Economics goes so far as to estimate that a Brexit without an agreement, that is to say with a return of customs duties and border controls, will be more costly than the Covid-19, because its consequences will be felt over a longer period.

The previous Conservative government itself did not hide the impact of Brexit in official documents unveiled at the end of 2018.

According to estimates at the time, a “no deal” would cut the GDP by 7.6% over 15 years. A trade deal would reduce it by 4.9%, a fairly severe impact, a sign of the challenge of leaving the EU.

The absence of a trade agreement, a real double shock with the pandemic, will result from January 1 in the return of WTO rules with sometimes prohibitive customs duties on a whole series of products, ranging from automotive spare parts with beef.

It could also be more or less acrimonious depending on the degree of cooperation between London and Brussels.

Many companies will see their costs increase overnight and prices for consumers are expected to rise, especially in food and fresh products, which are heavily imported from the EU. This effect could even be amplified by the fall of the pound sterling, which would increase the cost of imported goods.

But a trade agreement will be far from solving all the problems and will remain far less advantageous than the single market which ensures smooth trade with the continent.

A free trade treaty removes or greatly reduces customs taxes but does not cancel administrative formalities and border controls. Hence the ongoing construction of ten large truck parks in the south of England in order to contain the dreaded Dantesque traffic jams at first.

“There will be inevitable disruptions as companies become familiar with the new rules. But this period is expected to be relatively short” and London and Brussels “could quickly agree on equivalencies for financial services,” a crucial sector for the United Kingdom, notes Thomas Pugh, economist at Capital Economics.

The Bank of England (BoE) nevertheless predicts a drop in exports and a disruption in supply chains, with a 1% decline in gross domestic product in the first quarter of 2021.

Businesses and markets have learned to live with uncertainty since they were shocked by the British vote for Brexit in the 2016 referendum.

Double shock?

Four and a half years later, the employers and the unions urge the government to do everything to avoid a “no deal”.

“It’s a very frustrating time,” but “it’s not business, it’s politics,” fatalistic Tony Danker, new boss of the main organization, told the Financial Times over the weekend. CBI employer.

The automotive sector is particularly exposed, which exports a large part of production to the EU and relies on its soil of large international manufacturers, ready to pack their bags if Brexit goes wrong.

Japan’s Nissan did not hide the fact that the future of its giant plant in Sunderland was in the balance.

Prime Minister Boris Johnson assures him that the country will prosper even in the event of a “no deal”, in particular by concluding trade agreements around the world.

The reality of Brexit, with the effective exit on January 1 after a transition period, comes at the worst time for the British economy, which is just recovering from the shock of the pandemic and the historic recession estimated at 11 , 3% for 2020 by government services, before a rebound of 5.5% in 2021.

For the OECD, the country is at a “critical moment” in the face of these two shocks.

The organization predicts that the British economy will remain down 6% at the end of 2021 compared to its pre-crisis level.

Only Argentina (-8%) does worse among the world’s main economies.

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