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Failure to comply with a post-Brexit trade deal would cut the UK’s economic growth rate by more than half next year, delaying a full recovery from the coronavirus pandemic, according to a report.
Accounting firm KPMG said the economy would suffer greatly if the UK fails to reach a trade deal with the EU before the end of the Brexit transition period in late December, just as the country is trying to escape the deepest recession since records began.
Warning that companies were unprepared for such an outcome after a year of turmoil brought on by the pandemic, KPMG said GDP growth would be 4.4% in 2021 without a deal, compared to 10.1% if the UK and the EU maintained existing relations.
With companies ill equipped to deal with disruptions at borders, exiting on the terms of the World Trade Organization would delay the point at which the UK economy recovered its pre-pandemic peak until 2024, two years later than would be the case.
The forecast comes as talks between London and Brussels reach a critical phase this week, with the two sides still unable to agree on key areas, including fishing rights and fair competition rules for companies. Under an EU emergency plan, the European Parliament’s vote to seal a deal could be delayed until December 28, three days before the end of the transition period.
KPMG said it was still waiting for a last-minute deal to be reached, although it warned that any Brexit deal would still have costs for the economy because it would be less comprehensive than membership in the EU.
Forecasting an impact on cross-border trade and reduced levels of foreign direct investment in the UK under a limited deal, the accounting firm said GDP growth was expected to be 7.2% in its baseline on next year, and for the UK economy to return to its previous level. -Pandemic peak in late 2022.
GDP is expected to drop 11.2% this year as Covid-19 and lockdown measures to contain the spread of the disease cause unprecedented disruption for businesses.
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The accounting firm said an early vaccine would allow momentum in the economy to accelerate beginning early next year, forecasting the lifting of all social distancing restrictions from late spring that would give travel sectors a boost. and consumer orientation in particular.
Yael Selfin, chief economist at KPMG UK, said Brexit would undermine the economic momentum for all advanced economies from an early vaccine. “The impact of Brexit will highlight the UK among advanced economies next year,” he said.
“There will be changes even with a deal, but the initial destruction next year would be more acute without one. Hopefully we are out of the woods when it comes to Covid, but we still have to remember that the UK is entering another period where there will still be some kind of impact. “
