The bigger the trade friction Britain has with the European Union (EU), the greater the damage to the domestic economy. That is according to Ben Chu, economics editor of The Independent, who presented his analysis to young wealth managers at Sub35’s AlphaBeta Brewery event.
A ‘no deal’ Brexit, whereby Britain trades on World Trade Organisation terms, would see the country’s gross domestic product decline by 9% over 15 years.
The Bank of England’s series of ‘worst case scenarios’, based on a no deal Brexit and disorderly exit from the EU, point to a 48% drop in commercial property prices, 33% drop in residential house prices and an unemployment rate of 7%. In this event, the UK faces its biggest recession since the 1920s.
The deal being proposed by Prime Minister Theresa May would see a potential 4% knocked off the UK economy over the same 15-year period. There would not be any major economic consequences for at least 21 months as a transition period ensures continuity in trade and services.
Most exposed
The UK could face significant labour shortages if a proposed £30,000 salary cap for EU nationals becomes law. Chu suggests there would be insufficient labour available particularly to businesses in the hospitality and transport sectors. Some three-quarters of EU nationals currently working in Britain would be ineligible for a work visa if the proposed legislation was applied today.
While large FTSE 100 Companies have experience in filling out customs forms, a recent Bank of England report suggests that 250,000 small traders have never filled one out and are unprepared for that possibility.
Chu said many British businesses are not ready for a disorderly Brexit, whether that entails coping with labour shortages or adapting economically in the short and medium term.