The automotive, agriculture and chemical sectors are likely to be hit the hardest by a no-deal Brexit, according to analysts.
Finance firm ING said the sectors could be impacted due to trade exposure to the UK, potentially high trade tariffs in 2021, and disruptions to supply chains.
Timme Spakman, economist of international trade at ING, said: “As a result of the large economic volatility caused by the Covid-19 pandemic, the economic impact will not be as noticeable as it would have been if a 'cliff-edge' Brexit had occurred last year at growth rates closer to zero.
“Make no mistake: the introduction of tariffs, disruptions to supply chains and the risk of other non-tariff related disruption will have a negative impact.”
He added: “Disruptions to supply chains, thanks to border checks, will be small initially but could become an issue after a few months. Tariffs will be raised on numerous EU goods, and disruption to trade in both services and goods requiring new certifications is a risk if no contingency measures can be put in place.”
The three at-risk sectors have “more complex supply chain networks”, such as multiple border crossings due to imported parts, and they’re likely to “see the largest increase in costs as the rise in trade costs will accumulate with every border crossing”, according to Spakman.
“For example, more than 80% of UK cars are made for export. However, these cars include a lot of imported parts on which the EU and the UK will also impose tariffs in the event of a no-deal Brexit.”
Processed agricultural products will also see the largest negative impact due to tariffs becoming “as high as 150% on some dairy products” exported to the UK.
“Exporting to the UK will become a lot more expensive for the EU agricultural sector if no trade deal is reached. Other product categories with high tariffs are textiles and cars, adding to worries for an already volatile sector,” said Spakman.
The UK and the European Union are in the process of negotiating a trade agreement, with the transition period ending on 31 December. The government has published guidance on its Border Operating Model.
Stefan Tärneberg, director of Solution Consulting at supply management software firm, BluJay Solutions, said: “Crashing out of the EU without a deal will have a monumental effect on British trade.
“The sheer volume of customs declarations organisations will need to handle as the UK becomes a ‘third country’ is unprecedented. A trade agreement with the EU won’t take away the complexity of declarations, but it will lessen the strain on us all, slashing the number of hoops to jump through and restoring abundance as we know it.
“Without a deal, there is only one solution for a smoother trade situation. Companies must take matters into their own hands and automate the management of these declarations. Those which are so far unprepared will have a huge shock come January 1st – with a ripple effect that will impact us all.”
Matthew Woodcock, director at supply chain software firm Llamasoft, recommended that firms prepare by investing in advanced technologies, such as digital twins, to identify and fix potential supply chain weaknesses before they are exposed.
He said: “It is time for businesses to accept uncertainty as the deal they’ve been given, and prepare accordingly. The volatile nature of negotiations and confusion around trade deals mean businesses are unable to make any major decisions and subsequent changes to supply chains.
“Businesses must therefore focus on having responsive options immediately available. They should also draw upon their learnings from Covid-19 around the need for agility, contingency planning, inventory management and alternate sources of supply.
“Companies don't have to shoot in the dark. Digital twin technology allows businesses to model a range of scenarios and test the effectiveness of contingency plans ahead of deployment. For the prosperity of businesses and the country alike, the time to prepare is right now.”
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