In September, Bank of England governor Mark Carney warned ministers that a no-deal Brexit would see a plunge in sterling, a squeeze on real wages, a surge in inflation, rising interest rates and as much as a 35% fall in UK house prices.
The government’s own analysis suggests that a no-deal Brexit would cause a 7.7% reduction in GDP over the next 15 years. The chancellor, Philip Hammond, has warned this would necessitate additional government borrowing of £80bn a year, as tax rises would be infeasible.
With only months to go before the 29 March deadline, negotiations having reached deadlock on certain critical points, and prime minister Theresa May facing a backbench revolt from Eurosceptics, the risk that the UK will plunge out of the bloc without a deal is intensifying.
What would happen in the event of a no-deal Brexit
With no deal, the UK would revert to ‘third country’ status overnight, without agreements in place on trade or any chance of a transition period. In its Cost of No Deal: Revisited report, the thinktank UK in a Changing Europe said a no-deal Brexit would be “chaotic and severe” and “wreak havoc on jobs and trade”.
Certain sectors in the UK will feel the effects of a no-deal Brexit most acutely. While it’s impossible to predict exactly what will happen, we have a fair idea of how they’ll be affected.
Automotive speed bumps
The European single market, introduced in January 1993, has been pivotal to the growth of UK car manufacturing, encouraging companies such as Toyota, Nissan and Honda to set up plants here. But, if tariffs and customs delays interfere with the finely tuned, pan-European supply chain, many of these companies – which together employ 856,000 people and turn over £82bn in Britain – are likely to shift some or all of their production to the Continent.
Speaking at a zero-emission-vehicle summit in Birmingham, Jaguar Land Rover chief executive Ralf Speth said: “Brexit is due to happen on 29 March next year. Currently, I don’t even know if any of our manufacturing facilities in the UK will be able to function on the 30th.”
Mark Carney has warned that the chances of a no-deal Brexit are “uncomfortably high” and has called for UK banks and other financial institutions to bolster liquidity and capital ahead of a likely storm.
The EU has so far ignored a warning from the Bank of England that contracts may become invalid in a no-deal Brexit, causing financial chaos.
Most UK-based financial players that want to continue selling into the EU after 29 March now accept they are going to need a physical presence in the EU that extends beyond a perfunctory ‘letterbox’. Most City-based banks are already in the process of transferring jobs and employees to EU finance centres including Dublin, Frankfurt, Luxembourg and Paris.
Without continued participation in the European Chemicals Agency and adherence to its REACH regulation, UK chemicals manufacturers will be frozen out of the EU market.
To regain access, firms, which last year exported £17bn of chemicals and plastic to the EU, could re-register their products on the EU’s system via an affiliate or representative based in an EU member state. But that will take time and cannot commence until the UK’s departure, according to the National Audit Office.
One danger, highlighted by the environmentalist Bruce Lourie in The Guardian, is that the UK could opt for a laxer regulatory regime than REACH, which could make it a dumping ground for dangerous toxins. He fears the government may opt for such a regime, leaving “UK citizens and ecosystems more at risk of exposure to toxic chemicals”.
Brexit secretary Dominic Raab insists that, even in a no-deal scenario, Britain’s food supply isn’t a concern, but that is in stark contrast to what industry insiders are saying. According to UK in a Changing Europe’s Cost of No Deal: Revisited report, a no-deal Brexit would cause significant disruption to food imports and a hike in food prices.
UK-based food firms would, for example, need to register with a new, still non-existent, UK authority that would replace the EU’s TRACES system for tracking the movement of animals, food, feed and plants across Europe. But it could be nine months before such an entity is up and running.
Some major food companies are already putting contingency plans in place, in case of no deal. In September, Cadbury’s parent, Mondelēz International, said it was stockpiling ingredients and products.
The Brexit Notices
The government has published ‘technical notices’ detailing the likely impact of a no-deal Brexit on a range of sectors. These contain a few practical initiatives, such as a plan to change how VAT is levied on imports, but not much reassurance or any sign that additional, costly processes can be avoided.
The financial services notices make no bones of the fact that much will depend on the EU’s willingness to take steps to alleviate the likely chaos in cross-border finance: “Without EU action, EEA clearing members and trading venues will no longer be able to use UK central counterparties to provide their clearing services.” There’s also a warning that the cost of making cross-border payments is likely to rise substantially.
This article first appeared in the November/December 2018 issue of AT magazine.
Ian Fraser is a contributor for AAT's member's magazine, AT.