The Potential Impact of Brexit Without a Trade Deal

Britain and the European Union are seeking a post-Brexit trade deal, with failure likely to result in increased chaos in mutual trade, financial markets tumbling and huge economic costs.

Here are some of the potential pressure points of a failure to reach agreement on trade.

  • Investors and banks have long predicted a trade deal would be done, so a no-deal would hit the British pound, foreign exchange traders say. But investor sentiment was hit by the sides saying on Saturday that there was still no agreement covering annual trade worth nearly $1 trillion, and sterling has fallen against the U.S. dollar since then. The shock result of Britain’s referendum on leaving the EU in 2016 sent the pound down 8% against the dollar, its biggest one-day fall since the era of free-floating exchange rates began in the 1970s.
  • Britain would default to World Trade Organization (WTO) terms in its trade with the 27-state bloc. It would impose its new UK global tariff (UKGT) on EU imports while the EU would impose its common external tariff on UK imports. Borders risk disruption, especially the main crossing points, with experts saying shortages of certain foods are possible in Britain as it imports 60% of its fresh food, with disruptions in British lamb exports to the EU also possible.  Any disruption would be felt most keenly by sectors that rely on just-in-time supply chains, including autos, food and beverages. Other sectors likely to be affected would include textiles, pharmaceuticals, and chemical and petroleum products. The EU is Britain’s biggest trading partner, accounting for 47% of its trade in 2019. It had a trade deficit of 79 billion pounds ($104.86 billion) with the EU, a surplus of 18 billion in services outweighed by a deficit of 97 billion pounds in goods.
  • The impact would be felt sharply by the car industry in both Britain and the EU, with British automakers facing a 10% tariff on all car exports to the EU and up to 22% for trucks and vans if no Brexit deal is struck, 23 auto industry associations said. The same group, the Society of Motor Manufacturers and Traders, said a “no deal” Brexit would cut UK vehicle production by 2 million units over the next five years and undercut its ability to develop the next generation of zero-emission vehicles.
  • A no-trade deal would wipe an extra 2% off British economic output in 2021 while driving up inflation, unemployment and public borrowing, Britain’s Office for Budget Responsibility (OBR) has forecast. The OBR said tariffs under WTO rules and border disruptions would hit parts of the economy such as manufacturing that were emerging relatively unscathed from the COVID-19 pandemic.