It seems mad that a Brexit deal could be at risk over an industry as small as fishing that contributes less than £1 billion to UK GDP and not much more to French GDP. Which is why it is not surprising that Mr Barnier has committed himself to further talks in London ‘over the weekend if necessary’. We don’t know at time of writing whether his offer will be rejected but suspect it won’t be. This Forecasting Eye looks at what might happen if a Brexit deal does not take place.
The Brexit mess coincides with the second Covid wave. Though this is much less virulent than its predecessor, it is still deadly for some and has led to tiered lockdowns in the UK with the prospect of a ‘circuit breaker’ to stop people travelling around over the schools’ half term. And in Continental Europe policy has been similar. There are lockdowns of roughly comparable intensity in France, Italy and Spain and to a lesser extent in Germany.
Cebr’s research for the LCCI two years ago suggested that a No Deal Brexit could reduce GDP in London by at worst 5.3%, in Manchester by 2.7% and in Bristol by 2.6%. Most of these impacts would be more or less immediate. The Rand Corporation’s estimates of the impact of No Deal on the EU suggest a fall in GDP in whole of the EU of 0.7% while Cebr’s research for the European Commission suggests a loss of an additional 0.23% of GDP from lost access to the London financial markets. While the UK might eventually benefit from Brexit-related deregulation, this will take time to come through, possibly longer in the current locked down climate.
Before the second wave and when a Brexit agreement looked probable, Cebr was forecasting 5.0% growth in 2021 for the UK and 5.8% for the EU. The second Coronavirus wave may well have reduced business momentum sufficiently to reduce both numbers by as much as 1 percentage points. Hospitality and tourism will be very much under the cosh while property is perhaps the sector most badly affected in absolute terms. House prices will be down and property investment is likely to be slashed. There will also be effects on corporate and personal spending as asset prices fall and from a weaker stock market
But a No Deal Brexit will depress growth further. UK GDP growth next year under a No Deal Brexit assumption may be down to about 3%; Eurozone growth down to 4%. On these calculations the UK won’t return to 2019 levels of GDP until 2024 at the earliest, with the EU doing only marginally better.
As ever, the biggest risk is the shock to confidence. Politicians failing to make deals and agree on measures to counter a virus that does immense damage to the economy make it difficult for business to invest. Even before this our forecasts had suggested that it might take till the end of the current decade before investment had recovered. And things could deteriorate even further.
We expect, based on what happened in 2016, that if the No Deal Brexit news is confirmed, sterling will fall 5-10%; equities will be down by 5% and the upper end of the central London property market could be down by an additional 10% or so, despite the weaker pound. Ultimately most of these falls will be reversed but the shock to confidence will take time to be offset.
Let’s hope Mr Barnier’s weekend in locked down London helps prevent this.
For more information, please contact:
Contact: Douglas McWilliams email@example.com phone: 07710 083652