London briefing, Jan. 16
- What is the cost of no deal scenario for U.K. economy?
The question previously posed by the U.K. Prime Minister Theresa May “is really a no deal better than a bad deal?” is still much debated. Since the referendum, many national and international financial institutions and think tanks came up with various scenarios for a post-Brexit U.K. However, almost all reached the conclusion that a no deal is the worst scenario for the future of the U.K. economy that was once the fastest growing of the G-20 countries prior to the Brexit decision. However, now dark clouds of uncertainty are looming over the economy with questions over U.K. investments despite the positive economic outlook and strengthening growth in Europe.
Leaving the EU without a deal would be the most damaging Brexit outcome for the economy and could cost $140 billion 10 years after Brexit, according to a report released on Dec. 12 by the non-profit organization, the RAND Corporation.
According to the report, the best-case scenario would be a trilateral U.K.-EU-U.S. agreement. Leaving without a deal and operating under World Trade Organization (WTO) rules would reduce GDP by nearly 5 percent, or $140 billion (£105 billion), 10 years after Brexit, the report said.
A Scottish government study released Monday, Jan 15, shows that leaving the European Union with no deal could leave the country’s economy £12.7 billion a year worse off by 2030.
The study puts the impact of falling back on WTO tariffs at around 8.5 percent of Scotland's GDP – or equivalent to £2,300 per person.
Nicola Sturgeon, the current first minister of Scotland and leader of the Scottish National Party (SNP) has already called on Westminster to remain in the European single market and customs union after leaving the bloc.
The Center for Economic Performance estimates that a move to WTO rules, with the U.K. applying the same external tariffs as the EU, would lead to a large reduction of about 40 percent in trade with the EU over the next 10 years. The economic effect of this change would be equivalent to a 2.9 percent reduction in the U.K.’s income per capita, or 2.6 percent net of changes in budget payments from the U.K. to the EU. Adopting a policy of unilateral free trade would mitigate these costs somewhat but only marginally - by about 0.3 percent of GDP per capita.
One way or another, a no deal scenario seems to be far from “better than a bad deal” as it is likely to increase the uncertainty for British firms and the financial sector, both of which are vital for the future of the City of London - its financial center.