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But the outlook remains uncertain as the economy struggles to recover from a recession triggered by the coronavirus outbreak.
Image: Facebook.
LONDON – Brexit supporters have long argued that leaving the European Union, with or without a trade deal, would herald the so-called sunlit highlands of Britain’s economic prosperity.
But the outlook remains uncertain as the economy struggles to recover from a recession triggered by the coronavirus outbreak.
Despite extremely costly state emergency interventions, including subsidizing private sector wages, recovery does not appear to be on the cards for months, if not years.
However, Britain will embark on a life outside of its main trading partner on January 1, 2021, leaving the single market and the EU customs union that benefited “UK plc” for decades.
The nation officially left the EU in January, but is currently locked into a Brexit transition period, meaning the bloc’s rules still apply until December 31.
Many analysts predict that Brexit will unleash even more painful economic damage, striking another hammer blow just as the consequences of COVID-19 begin to subside with the arrival of vaccines.
The damage it will do depends on the outcome of the conflict-ridden trade talks between Brussels and Britain’s conservative pro-Brexit Prime Minister Boris Johnson of Britain’s government, which have gone to the limit.
‘INEVITABLE INTERRUPTION’
Capital Economics analyst Thomas Pugh says there will inevitably be outages, but predicts they might not be long-lasting.
“If there was a deal, it would probably mean there would be no tariffs or quotas on goods, and trade in services would probably remain the same as it is now,” Pugh said in a research note, also sounding optimistic about a possible deal for key financial services. .
In the absence of a deal, Britain will revert to World Trade Organization (WTO) rules that would impose tariffs on a wide range of products, from auto parts to beef.
UK companies would face a sudden increase in their costs, which is expected to pass on to consumers in the form of higher prices, particularly for imported fresh food products.
“There will be an inevitable disruption as companies get used to the new rules. There will be ‘rules of origin’ controls for the first time in many years,” predicted Pugh.
“But the period of interruption should be relatively short.”
At the same time, even a Brexit trade deal would not be as advantageous as being part of the EU single market, ensuring a smooth trade flow across the continent.
The Bank of England has predicted that falling exports and supply chain disruption stemming from the lack of agreement could cause the UK economy to contract 1.0% in the first quarter of 2021.
The highly respected London School of Economics has predicted that a no-deal Brexit, with reimposed customs duties and border controls, could wreak more economic havoc than the coronavirus due to longer-term consequences.
And official UK documents, dating from the previous Conservative government, estimated that the lack of agreement would cut Britain’s gross domestic product by 7.6% over a 15-year period.
The documents, presented in late 2018, also suggested that GDP would still decline by 4.9%, even in the case of a trade deal.
Although a free trade agreement would eliminate or drastically reduce customs duties, it does not eliminate all the bureaucracy or border controls.
Therefore, Britain is pushing ahead with the construction of giant truck parks in Kent, in the south-east of England, as it seeks to avoid traffic jams on the roads in and out of London.
‘THE LAST LEG REQUIRES THE BIGGEST JUMP’
Both businesses and markets were shocked in 2016 when British voters decided to end nearly half a century of European integration.
Fast-forward four and a half years, and the business community still urges the government to do everything in its power to avoid a no-deal exit over the edge.
Instead, they urge a compromise with Brussels.
“This is a deeply frustrating time for business people,” Tony Danker, the new head of the business lobby group Confederation of British Industry, said in an interview with the Financial Times newspaper.
“We see the compromise landing zone very clearly,” he said.
“But this is not business, it is politics. And it is a time for political leadership on both sides. The last leg always requires the biggest leap.”
“If no agreement is reached on the line, the network would further expand companies facing a bleak end to 2020.”
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