A ‘hard Brexit’ could cost the UK up to £400 billion by 2030, a study carried out by Rabobank has suggested.
18% of Gross Domestic Product (GDP) growth could be lost by 2030 if the UK leaves the EU without a trade agreement. The study also suggested that British residents could be out of pocket to the tune of £11,500 as a result of a hard Brexit.
The bank analysed the consequences of three separate Brexit scenarios, including where Britain leaves the EU with a trade agreement, where it leaves without a trade agreement and where it obtains a so-called ‘soft Brexit’ and leaves the Single Market, but not the customs union.
If the UK leaves the EU without a trade deal in 2019, Britain could enter a two-year recession, and GDP would fall to 2.4%, Rabobank suggested.
However, a recession would be inevitable. If Britain leaves with an agreement, or experiences a soft Brexit, then a ‘milder and much more short-lived’ recession would take place.
Hugo Erken, Senior Economist at Rabobank, commented: ‘By looking at dynamics such as innovation, competition, knowledge and human capital, how they will change and what effects this will have on the structural makeup of the UK and European economy, our research shows that the long-lasting impact of Brexit is likely to be more severe than initially anticipated.’
A survey carried out by the Institute of Chartered Accountants in England and Wales (ICAEW) has suggested that the number of businesses declaring insolvency could potentially rise as a result of the impact of Brexit on the UK economy.
The survey revealed that 73% of individuals working in the insolvency and business restructuring industry believe that Brexit poses the ‘biggest threat’ to businesses over the coming years. Meanwhile, 56% of those surveyed also believe that a rise in interest rates presents a risk to UK businesses.
The survey suggested that the retail sector could be the worst affected by insolvency, with 77% of respondents believing that it would be the sector most likely to experience ‘increased financial difficulty’.
Affected firms should seek early help in a bid to restructure their finances, business processes or management, the ICAEW stated.
Reflecting on the issue, Bob Pinder, Regional Director at the ICAEW, said: ‘We are in no doubt that businesses in the UK face difficult times ahead. A sharp and unexpected rise in the cost of doing business can make managing liquidity tough.
‘We believe that a change in attitudes is critical in order to successfully avoid substantially increased corporate insolvencies – confronting business issues, rather than being ashamed of them.’
More than 100 UK businesses have signed a letter to the Brexit Secretary, David Davis, urging him to ensure that ‘urgent progress’ is made in the next round of Brexit talks.
The letter calls for Mr Davis to make sure that transitional arrangements are secured.
Signatories of the letter represent ‘businesses of all sizes, sectors and regions of the UK’, and have responsibility for over 500,000 jobs in the UK and 600,000 jobs in the EU.
In the letter, the businesses state that they need to make investment and employment decisions now that will have consequences for economic growth and jobs in the future.
The businesses affirm that, until transitional arrangements can be agreed upon, the risk of the government failing to secure a Brexit deal ‘remains real’. The firms therefore want ‘substantive progress’ to be made in the upcoming negotiations.
Commenting on the issue, Carolyn Fairbairn, Director General of the Confederation of British Industry (CBI), said: ‘Businesses are deeply concerned about Brexit and getting more so by the day. Not about the fact that Britain’s exit from the EU is happening – they’re fully committed to making it work. The concern is how we do it.
‘The top priority is to open talks on a ‘status quo’ transition for business, lasting two to three years. That will clear a path to discussing the main prize: trade between the UK and the rest of the EU.’
The letter can be read in full here.
Chancellor Philip Hammond has announced that he will deliver the Autumn Budget on Wednesday 22 November.
The Autumn Budget will be the second Budget to be delivered this year, and will set out the government’s plans for the UK economy, based on forecasts from the Office for Budget Responsibility (OBR).
It will also outline any tax changes and spending plans for the new tax year.
Mr Hammond stated that the government intends to set its thinking on ‘how to keep the economy strong and resilient and fair’ in order to create ‘an economy that works for everyone’. The Chancellor recently told the Economic Affairs Committee that the UK economy has been ‘overshadowed by the uncertainty of the Brexit negotiation process’.
The 2017 Autumn Budget will be the first of its kind under the government’s new fiscal timetable: during the 2016 Autumn Statement, the Chancellor revealed that the annual Budget will now take place in the Autumn, as opposed to Spring.
Going forwards, Mr Hammond will make a Spring Statement each year, responding to a forecast produced by the OBR.
The first Spring Statement will be delivered in 2018.
A survey carried out by the BBC has revealed that economists in the UK do not expect an interest rate rise until ‘at least 2019’.
Economists believe that the Bank of England’s Monetary Policy Committee (MPC) will not want to raise rates whilst Brexit negotiations are ongoing.
The base rate currently stands at 0.25%.
Half of the economists surveyed believe that growth in wages will outpace inflation during the first few months of 2019, the BBC found. In July, the rate of inflation stood at 2.6% – above the Bank of England’s 2% target.
Addressing the issue, Stuart Green, UK Chief Economist at Santander, said: ‘We believe that policymakers will be reluctant to tighten monetary policy until greater clarity emerges around the UK’s post-EU trading framework, and our expectation of declining inflation through 2018 should also reduce the pressure for an interest rate rise.’
However, Michael Saunders, a member of the MPC, recently stated that a ‘modest’ rise in interest rates is needed to ‘curb inflation’. Mr Saunders said that a rise would also ‘help ensure a sustainable return of inflation to target over time’.
The British Retail Consortium (BRC) has urged the government to secure an advantageous customs deal with the EU ahead of Brexit in 2019.
The BRC warned that agreements must be put into place in order to avoid goods being held up at borders. It suggested that delays or disruption could lead to rising prices, reduced availability on shelves and an increase in waste.
Investment in ports, roads and transport infrastructure should be prioritised to ‘get systems ready’ for the day when the UK leaves the EU in 2019, the BRC stated.
Helen Dickinson, Chief Executive of the BRC, commented: ‘A strong deal on customs is absolutely essential to deliver a fair Brexit for consumers.
‘Whilst the government has acknowledged the need to avoid a cliff edge after Brexit day, a customs union in itself won’t solve the problem of delays at ports.
‘So to ensure supply chains are not disrupted and goods continue to reach the shelves, agreements on security, transit, haulage, drivers, VAT and other checks will be required to get systems ready for March 2019.’
The government recently published a Brexit customs position paper, which set out two approaches: a ‘highly streamlined’ customs arrangement between the UK and the EU, and a new customs partnership with the EU.
A second paper outlined proposals to ensure that existing trade in goods and services can continue after the UK leaves the bloc.
The government has outlined new arrangements for the protection and exchange of personal data between the UK and the EU once Britain has left the bloc in 2019.
A ‘unique approach’ to data protection and data sharing between the UK and the EU has been put forward by the government, which will help to ensure ongoing competitiveness, job creation and innovation.
The approach would reflect the ‘unprecedented alignment’ between British and European law, and will put into place ‘high data protection standards’ at the point when the UK leaves the EU.
A new UK-EU model for exchanging and protecting personal data has been put forward by the government, which will permit information to continue to be exchanged in a ‘safe and regulated way’, and continue to protect individuals’ privacy. The government stated that the model won’t impose ‘unnecessary additional costs to business’.
Commenting on the approach, Matt Hancock, Minister for Digital, said: ‘The UK is leading the way on modern data protection laws and we have worked closely with our EU partners to develop world leading data protection standards.’
However, the Federation of Small Businesses (FSB) has warned that small firms require support to ensure that they are ready for new data protection rules. The General Data Protection Regulation (GDPR) is set to come into effect in May 2018, and will require businesses to safeguard the collection, storage and usage of their clients’ personal data.
Mike Cherry, National Chairman of the FSB, said: ‘We know that many small businesses have concerns about the incoming GDPR and many are simply unaware of the scope of the changes. There is a clear and present danger that companies could inadvertently face a fine if action is not taken to provide support and guidance to help them properly prepare for data protection changes.’