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The Governor of the Bank of England, Andrew Bailey, warned that the economic cost of a no-deal Brexit would be greater in the long run than the damage caused by Covid-19.
Bailey said that if an agreement is not reached before the Brexit transition expires at the end of December, it would lead to a disruption of cross-border trade and damage the goodwill between London and Brussels needed to build a future economic partnership.
Speaking to MPs on the Commons Treasury committee, he said the fallout from the pandemic and the second national lockdown on England were having a much greater short-term impact on the economy. However, “the long-term effects, I think, would be greater than the long-term effects of Covid. But … it would be better to have a trade agreement, yes, there is no question about it. “
With just over a month after the transition period ends, a trade deal between London and Brussels is close to being finalized, although officials have warned that the risk of an accidental no-deal remains if commitments cannot be reached.
Over the weekend, Chancellor Rishi Sunak said Britain should not agree to a deal with the EU at any price, insisting that Covid-19 posed a far greater threat to the economy than a no-deal scenario. Sunak said that an agreement was preferable, but that the United Kingdom “would prosper in any eventuality”.
However, Bailey said that “the best thing for both parties, for the UK and the EU, is that there is a trade agreement.”
It comes after an analysis by the London School of Economics and the United Kingdom in a Changing Europe concluded in September that the long-term economic impact of a no-deal Brexit could be two to three times worse than that of the pandemic.
When asked about the investigation, Bailey said that economic models suggested there would be long-term consequences as it could take a long time for the UK to adjust to a new business relationship. “It takes much longer for the real side of the economy to adjust to the change in openness and the change in the profile of trade,” he said.
The fallout from Covid-19 and lockdown measures plunged the British economy into the deepest recession on record this spring, with a 20% drop in gross domestic product (GDP) in the second quarter.
With the economy under continued pressure amid the second wave of Covid, despite a rapid recovery this summer, Threadneedle Street estimates that the pandemic will cause persistent long-term scars, with total economic output roughly 1.75% lower. than would have been the case in late 2023.
No-deal Brexit would not cause as much damage as that inflicted by the pandemic earlier this year. However, the LSE model estimates a GDP reduction of 8% over a decade compared to remaining in the EU.
