A no-deal Brexit will affect the UK economy, despite Boris Johnson claiming otherwise. Johnson, who is the main candidate to become Britain’s next prime minister, has more than once argued that a no-deal Brexit is possible on 31 Oct., or, as he promised more recently, “do or die.”
Speaking to TalkRadio, Johnson said that Theresa May’s withdrawal agreement needed more than a few tweaks, and that “It’s got to be, you know, we need a new withdrawal agreement if we’re going to go out on the basis of a withdrawal agreement.” While, on certain occasions, he gave the impression to some MPs that he was unsure about leaving the EU on 31 October, with certain MPs he was quite definite about the departure date. When he was asked during the specific interview he persisted: “We are getting ready to come out on 31 October. Come what may,” and added, “Do or die. Come what may.”
But Johnson’s stance is considered rather dangerous as many economists and politicians have argued. Let’s see in more detail, how leaving the EU without a deal will affect the UK economy.
What economic impact would a no-deal Brexit have on the UK?
Bank of England governor Mark Carney has rejected Boris Johnson’s claim, as he confirmed that the “UK would be automatically hit by tariffs on exports to the EU.” Earlier this week, Johnson had said that tariffs would not be paid if the UK left the EU without a deal, due to article 24 of the General Agreement on Tariffs and Trade (GATT) which covers the international trade in goods. Clearing the confusion, Carney said to BBC: “Gatt 24 applies if you have an agreement, not if you’ve decided not to have an agreement or have been unable to come to an agreement. Not having an agreement with the EU means that there are tariffs automatically because the Europeans have to apply the same rules to us as they apply to everyone else. If they were to decide not to put in place tariffs they also have to lower their tariffs with the United States, with the rest of the world. And the same would hold for us.”
A no-deal Brexit means that British exports would be hit with import tariffs which are currently around 2-3 percent for non-agricultural goods but are higher for cars and farm products. So, claims by Boris Johnson and other Brexiters saying that Britain could avoid these tariffs under world trade rules, have not only been rejected by the BoE’s Carney, but also trade minister Liam Fox, who also argued that an agreement with the EU would need to be in place.
In the possibility of a no-deal Brexit, Britain will eliminate import tariffs for many products for up to a year, something that would “reduce the inflationary hit to consumers but would expose many British companies to tougher competition.”
In a Reuters article, outlining the effects of a no-deal Brexit, it was pointed out that, based on Bank of England’s estimates, the UK economy could be shocked into a “5 percent contraction within a year, nearly as much as during the global financial crisis.” The same article also noted, that “Britain’s finance ministry says the economy could be 8 percent smaller by 2035 after a no-deal Brexit than if it stayed in the EU. The hit would be bigger if migration slowed sharply.” A no-deal Brexit would deter foreign investors, while Britain’s current account deficit would make Britain depend on, what Carney has called, “the kindness of strangers.”
Finance minister Philip Hammond has warned that a no-deal Brexit would postpone the government’s plans to end austerity, while Brexiters have argued that leaving the EU with no deal would help the public finances as the UK will stop payments into the EU budget.
Are you worried by a weak pound?
A no-deal Brexit would probably push the pound down, which will consequently drive inflation down.
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