UK's Brexit secretary David Davis and the EU's chief Brexit negotiator Michel Barnier will meet later this month in Brussels © PA Images
UK's Brexit secretary David Davis and the EU's chief Brexit negotiator Michel Barnier will meet later this month in Brussels © PA Images

Hard Brexit could cost EU economy £100bn

16 January 2018

A no-deal Brexit could cost the remaining 27 EU countries £99.5bn in lost trade by 2020, according to research group Oxford Economics.

The group’s models found that under a so-called hard Brexit, where the UK will trade with the EU under World Trade Organisation (WTO) rules, the EU would lose out on around £44.4bn directly in exports and imports. 

That figure rises to £99.5bn across the bloc once firms lower down the supply chain, such as car part suppliers, are taken into account.

Neal Kilbane, senior economist at Oxford Economics, said previous estimates of the hit to the EU did not take into account the complexity of supply chains, where materials cross the Channel multiple times before being ready for market.

“Given the increasingly complex and international nature of modern day supply chains, the direct impact will have consequences that reverberate across sectors and national borders,” he said.

The report said although the effects would be “far from disastrous” for the EU as a whole because it has a larger economy compared to the UK, Germany would be the particuarly exposed to a supply chain shock, as its firms account for around 18% of goods used by European companies in the motor industry – the EU’s largest export to the UK. 

It warned that the Republic of Ireland’s economy was also “particularly exposed”, due to the sizeable role the UK plays in its import and export markets, and the Czech Republic’s GDP could be hit by more than 1%.

Hungary, the Netherlands and Denmark could also see gross output fall by almost 1% if there is no deal, it said.

The report’s warnings come as ministers prepare for the second round of complex negotiations with Brussels over the UK’s future trading relationship with the single market bloc.

So far, most of the focus has been on the impact of leaving on the UK, while the report highlights the risks for both parties in the event that the UK falls back on WTO rules, which would lead to greater costs from trade tariffs and slower movement of goods across borders. 

The group’s report also updated the assessment of the broader impact on the UK’s economic activity.

It said the UK stood to lose an estimated £75bn in trade directly from exports and another £50m from supply chain impacts by 2020.

It said while suppliers may not be directly linked to exports to the EU, their businesses would still be affected if failure to agree a trade deal reduced overall demand, which many economists predict will happen. 

“In addition, a significant proportion of the UK supply chain is located in Europe, much larger than the reciprocal share of the EU supply chain in the UK,” it said.

Kilbane said the report showed that the risk of a hard Brexit remains “elevated”.

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