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The British economy has been hit by the pandemic. Now, after a meeting of EU leaders decided that not enough progress has been made in talks on a new trade deal with the UK, Johnson is faced with a tough decision: will he keep the discussions past a date? Self-imposed limit or will it go away?
Leaving empty-handed would create trade disruptions when the transition period ends later this year, reducing more than $ 25 billion from the UK economy in 2021 compared to a scenario where a trade deal is agreed. limited free trade, according to a CNN Business analysis based on forecasts from Citi and the Institute for Fiscal Studies. That would further delay the country in its efforts to recover from the historic shock caused by the pandemic.
“The combination of Covid-19 and the exit from the EU single market makes the UK’s prospects exceptionally uncertain,” said Laurence Boone, chief economist at the Organization for Economic Cooperation and Development, in a report this week. . “Actions taken to address the pandemic and decisions made about future business relationships will have a lasting impact on the UK’s economic trajectory for years to come.”
Little progress on the deal
Time is running out for the UK and the European Union to reach an agreement, and Britain will lose its favorable trade status with the bloc at the end of December.
This week’s meetings ended without much progress. Fishing rights and the framework for resolving future disputes remain key points, according to Mujtaba Rahman, managing director for Europe at Eurasia Group, a political risk consultancy.
“We do not believe that the agreement will fail with fish, but we believe that the technical and political challenges it presents will be more difficult to overcome than many believe,” Rahman said Thursday.
Johnson had said the terms of the future trade deal should be defined in mid-October to give companies enough time to plan for the outcome. That deadline has come and gone.
On Thursday, the European Union said it was ready to continue discussions in the coming weeks. But UK chief negotiator David Frost said on Twitter that the EU Council’s conclusions left him “disappointed” and that Johnson would present the UK’s position on Friday.
“As the Johnson government is torn apart by the coronavirus, the need for a political victory, which only a deal can be, is greater than ever,” he said.
Businesses sound the alarm
The confusion over the future of Brexit couldn’t come at a worse time for the UK.
Citi and IFS estimate that the UK economy will contract 9.4% this year. That would be the biggest drop since 1921, according to Bank of England data. Additional restrictions that take effect could make matters worse.
A disorderly break with the European Union in addition to the coronavirus recession would only prolong the recovery.
With a limited trade deal, the UK economy will rebound with growth of 4.6% in 2021 before losing some momentum between 2022 and 2024, according to projections from IFS and Citi. Failure to reach a trade agreement with Europe would reduce this level of growth by up to one percentage point. The difference amounts to almost £ 20 billion, or more than $ 25 billion.
According to economists at Citi and IFS, even the best-case scenario of a limited trade deal would leave the UK economy 2.1% smaller in 2021 than it would have been if the transition period were extended indefinitely.
With significant uncertainty clouding the outlook, companies are expressing anxiety for the coming months.
In a survey of more than 950 executives released Friday by the Institute of Directors, about a quarter of those surveyed said they are not sure they are ready for the end of the transition period.
“The prospect of no deal would be overwhelming enough, let alone dealing with it in the midst of a global pandemic,” said IoD Senior Policy Advisor Allie Renison. “These outages will not cancel each other out. If anything, they would compound the pain for British businesses.”
