UK could lose £400 billion as result of ‘hard Brexit’, study suggests

UK could lose £400 billion as result of ‘hard Brexit’, study suggests

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.’

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New trade body to be created by government

The government has revealed its intention to create a new trade authority, termed the UK Trade Remedies Organisation, ahead of Britain’s departure from the EU in 2019.

The UK Trade Remedies Organisation will help to combat incidents of unfair trade that may occur once Brexit has taken place.

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It will also build upon the UK’s ‘capability and capacity’ to investigate complaints in relation to unfair competition, and will allow the UK to establish its own trade rules.

The government is looking to recruit around 130 employees, and intends to have the new organisation up and running by October 2018.

Commenting on the news, Jill Rutter, Programme Director at the Institute for Government (IfG), said: ‘The government needs to prepare for Brexit, and that includes being able to run our own system of trade defence.

‘The government’s current policy is to leave the single market and the customs union and has to be ready for leaving with no deal. So this is a sensible part of that contingency planning.’

CBI publishes Brexit guide for businesses

The Confederation of British Industry (CBI) has published a Brexit guide for businesses, which provides advice and support in regards to trade between the UK and the rest of the world.

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The guide, entitled ‘The Future of Trade for the UK: A Guide for Business’, includes advice to help firms manage any changes Brexit may bring. It assesses different trade scenarios for Brexit, such as UK/EU long-term agreement negotiations and third country free trade agreement negotiations, and analyses the potential impact on UK businesses.

Within the document, the CBI also called for ‘more engagement with the government’ before any Brexit negotiations begin.

In order to begin the Brexit process, the government has set an end of March deadline for triggering Article 50 – the legal process that will mark the beginning of two years of EU exit talks.

Josh Hardie, Deputy Director General of the CBI, commented: ‘As it negotiates the UK’s exit from the EU, the CBI and the business community will support the government to make Brexit a success for the whole economy.

‘A new relationship with the EU is potentially only two years down the track, so it is critical that businesses – of every size, sector and region – know, understand and feel comfortable navigating information and data about trading globally in order to make informed decisions for their futures.’

Prime Minister outlines plans for new industrial strategy

Prime Minister Theresa May has outlined proposals for the government’s new industrial strategy, which is designed to provide a boost to the UK economy.

The ten-point plan, which is set out within a government green paper, aims to support those looking to start up in business and help new firms to grow.

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It also seeks to drive growth across the UK, encourage trade and inward investment, upgrade infrastructure and deliver affordable energy and clean growth, amongst other proposals.

Alongside the plan, the Prime Minister announced a new strategy for governing the country. She stated: ‘Underpinning this strategy is a new approach to government, not just stepping back and leaving business to get on with the job, but stepping up to a new, active role that backs business and ensures more people in all corners of the country share in the benefits of its success.’

Business groups have largely welcomed the Prime Minister’s plan. Carolyn Fairbairn, Director General of the Confederation of British Industry (CBI), said: ‘A modern industrial strategy will be a landmark opportunity to build a successful, modern economy as the foundation for a prosperous, fairer and more inclusive society.’

Meanwhile, Adam Marshall, Director General of the British Chambers of Commerce (BCC), commented: ‘Business communities across the UK will be pleased to see that harnessing the potential of our cities, towns and counties lies at the heart of the government’s approach to [the] industrial strategy.’

Brexit ‘no longer biggest risk to UK financial system’, says Bank of England Governor

The Governor of the Bank of England, Mark Carney, has told MPs that Brexit is no longer the main threat to the UK financial system and that its risk to the UK economy in general has declined.

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Speaking to the Treasury Select Committee (TSC), Mr Carney admitted that the economy was growing more strongly after the referendum than he or the rest of the Monetary Policy Committee (MPC) had predicted, but claimed that the Bank’s own actions had mitigated against problems.

Asked by TSC chairman, Andrew Tyrie MP, if Brexit remains the biggest domestic risk to the financial system, as he had warned before the vote, Mr Carney said: ‘Strictly speaking, the view of the Committee is no.

‘In the run up to the referendum, we felt it was the largest risk because there were things that could have happened which had financial stability implications. Actions were taken to mitigate that, but having got through the day after, the scale of the immediate risks has gone down.’

Mr Carney also suggested that the risks associated with the post-departure transition were now greater for the rest of Europe than for the UK, but also called for a ‘transitional deal’ to help reduce volatility as Britain exits the EU.

Meanwhile, a series of reports and indicators suggest that the UK economy is strengthening. Industrial production rose by 2.1% in November compared with October, and manufacturing output increased by 1.3% month-on-month in November.

The FTSE 100 index recently hit an unprecedented high and set a new ‘winning streak’ record by closing higher for 12 consecutive trading days, while several major retailers, including Sainsbury’s, Tesco and Marks and Spencer, announced stronger-than-expected results from the pre-Christmas trading period.

Business world ‘divided’ on EU membership as voters head to the polls

As voters head to the polls to decide whether the UK should remain a member of the European Union (EU) today, prominent figures from the world of business have expressed starkly contrasting views on the benefits of membership.

Gerald Mason – senior vice president of Tate & Lyle Sugars, one of Britain’s oldest companies – has written a pro-Brexit letter to his staff claiming that their jobs would be more secure outside of the EU. He said: ‘Last year EU restrictions and tariffs pushed our raw material costs up by nearly 40 million euros (£31 million) alone, turning what should have been a good profit that we would all share into a 25 million euro loss’.

Meanwhile, entrepreneur Sir James Dyson wrote in The Times newspaper that the referendum was ‘the last opportunity to regain control of our futures’, and that voting to remain in the EU ‘would be an act of national self-harm’.

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However, the same edition of The Times carried a letter signed by more than 1,280 executives, including directors from 51 FTSE 100 companies, urging Britons to vote Remain. The letter said: ‘We know our firms are stronger in Europe. Our reasons are straightforward: businesses and their employees benefit massively from being able to trade inside the world’s largest single market without barriers.

‘We know that Britain leaving the EU would mean having to re-establish terms of trade from scratch with our home market of 500 million consumers. That wouldn’t just hurt exporters but the hundreds of thousands of small and medium firms who do business with them.’

‘Divided’

The letter’s signatories employ a combined figure of some 1.75 million people. But despite the number of pro-Remain executives, Leave campaigner Daniel Hannan has insisted that the business world is ‘divided’, with many smaller businesses being pro-Leave.

He told the BBC: ‘We know that big businesses like Brussels, they’ve spent years and they’ve spent millions lobbying in Brussels to get rules that suit them and hurt their rivals. The business community is divided, with the exception of the mega banks and the large multinationals which are overwhelmingly pro-EU because they’ve used the regulatory system in Brussels to raise barriers to entry to make it much tougher for a start-up or an innovator to challenge them.’

The view from Europe

Division over Brexit is reflected across Europe. Germany’s finance minister Wolfgang Schaeuble has said a vote to leave would mean Britain leaving the European single market, and that ‘out is out’, making it much tougher for Britain to negotiate a favourable trade deal.

But Markus Kerber, the director general of the BDI, which represents German industry, told the BBC: ‘Imposing trade barriers, imposing protectionist measures between our two countries – or between the two political centres, the EU on the one hand and the UK on the other – would be a very, very foolish thing in the 21st century.

‘The BDI would urge politicians on both sides to come up with a trade regime that enables us to uphold and maintain the levels of trade we have, although it will become more difficult.’

Uncertain times

With pre-referendum opinion polls too close to call, and with Chancellor George Osborne warning of the need for a second 2016 Budget in the event of a Leave vote, the country is potentially entering a period of considerable uncertainty.

But regardless of the outcome of today’s vote, we will be on hand to advise you and your business, and to help guide you through whatever lies in store. Please contact us for advice.