Brexit Transition in 8 days: Economy is forecast to weaken – ‘deal’ or ‘no-deal’

In its final briefing before the UK gives up its membership of the EU’s ‘single market’ and ‘customs union’, MP’s have been warned to prepare for weaker economic growth in both the ‘short’ and ‘long’ term.  Down by 2% in 2021 leaving with an agreement, and 4% in a no-deal scenario.

This will be further adversely affected by disruption to trade and smooth flow of goods due to the new requirements for border checks, product certification and customs formalities.  Note that the report, published on 18 December, pre-dates the cross-channel border closures due to the Covid-19.

The NAO report on the ‘lack of preparedness’ has been proven right – the Government has demonstrated lamentable understanding of and complete disregard for logistics businesses and the human costs to truckers on whom we all rely.

The Road Haulage Association describes today’s situation in Dover as “chaos”. Thousands of drivers are trapped on the M20 and Marston Airport.  They lack adequate information; food provision is “very inadequate”; and there are not enough toilet and washing facilities.  The same drivers face new requirements and personal fines of £300 – £1,000 for any missing information in the truck – or its load – documentation.  And the UK cannot feed the nation unless hauliers and drivers feel confident and welcome as they drive from across Europe.  Brexit has got off the worst possible start.

Brexit Transition in 9 Days: Parliament report ‘time to trigger final preparations’ – Europartnership

Parliamentary report on short term economic impacts from leaving the EU single market and customs union – ‘deal’ or ‘no-deal’

  • Potential border disruption – the degree of disruption will depend on how prepared businesses are, as well as the administrative and operational readiness of UK and EU authorities to ensure minimal disruption at the border;
  • New barriers to UK-EU trade – there will be additional costs to UK-EU trade.  This is likely to result in lower amounts of trade flowing between the UK and EU;
  • Uncertainty – with a week to go, the terms of UK-EU trade from 1 January 2021 remain unclear;
  • The value of sterling – the pound fell sharply following the EU referendum – and has never recovered its previous level.  This has resulted in higher import prices, rising inflation and lower real (inflation-adjusted) average household disposable incomes.  It is difficult to imagine a scenario that will halt the continual fall in the pound, exacerbating these impacts;
  • Interaction with coronavirus economic impact – the compound effects have yet to be modelled, but it is difficult to imagine a scenario where the impacts of Covid act to mitigate the impacts of leaving the EU.

Long-term economic impact

  • Trade – barriers between EU and UK will increase.  Most economic studies show overall UK trade with non-EU countries will not compensate – translating into a lower level of GDP compared with the UK staying in the EU;
  • Investment – as a member of the EU single market and customs union has provide the opportunity for firms to trade with the EU from a UK base with minimal trade barriers.  Without this access, firms may see the UK as a less attractive destination for investment – and domestic firms may shift some of its output to be based in the EU.  This may be somewhat offset as the UK has flexible labour markets, a language spoken widely around the World, an educated workforce and a strong rule of law – all of which are attractive for investors;
  • Regulation – the UK will have more control in setting regulations once it is no longer subject to EU laws.  However, most economic studies find only limited potential economic gains from such freedoms;
  • Immigration – by leaving the EU single market, freedom of movement ceases.   The impact of the pandemic on immigration is likely to outweigh benefits to the economy;
  • Public finances – as an EU member state, the UK had been a net contributor to the EU budget, paying in roughly 0.4% of annual GDP more than it received from EU programmes. However, this will be far outweighed by the forecast 2%-4% drop in GDP from the lower economic activity and consequential loss of tax revenues.

Economic impact assessments

There are four ‘authoritative’ assessments quoted in the Parliamentary report of 18 December –  The Government (Office for Budget Responsibility), Bank of England, Think-Tank ‘National Institute of Economic and Social Research’, and the ‘Institute for Fiscal Studies’.

All conclude that ‘no-deal’ – or ‘WTO’ – scenario has the most “negative impact on UK GDP”.  This is true even for the ‘long’ term of between 10 – 20 years, depending on the study.  The UK was warned to plan for a “smaller economy” – and that was before the devastating compound impact of Covid.

To date, there is little sign of acknowledgement or understanding of reality coming from Government – with the Chancellor of the Duchy of Lancaster, Michael Gove, telling MP’s that the UK’s future outside the EU is bright.  That is not what his own experts, business and commerce leaders have been telling him.


Outside the EU, a bright future awaits Britain – GOV.UK (

Picture:  Marston Lorry Park 23 December 2020 (Getty)