A no-deal Brexit could cost the UK economy £105 billion

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  • Leaving the EU without a deal could cost the UK economy $US140 billion 10 years after Brexit, according to a new report by the RAND Corporation.
  • The best case scenario would be a trilateral UK-EU-UK deal, the report said, which could be better for the UK economy than continued EU membership.
  • Three possible hard Brexit and three possible soft Brexit deals would all result in net declines in UK GDP 10 years after Brexit, the report predicted.

LONDON – Leaving the EU without a deal would be most damaging Brexit outcome for the UK economy and could cost $US140 billion 10 years after Brexit, according to a new report by non-profit organisation the RAND Corporation.

Of all the possible Brexit scenarios, leaving without a deal and operating under World Trade Organisation (WTO) rules would reduce GDP by nearly 5%, or $US140 billion (£105 billion), 10 years after Brexit, compared with EU membership, the report said. The best case scenario, it said, would be a trilateral UK-EU-US agreement.

“The analysis clearly shows that the UK will be economically worse off outside of the EU under most trade scenarios,” said Charles Ries, international vice president of RAND and lead author of the report. “The key question for the UK is how much worse off.”

“It is in the best interests of the UK, and to a lesser extent the EU, to achieve some sort of open trading and investment relationship post-Brexit,” he said.

RAND and RAND Europe used economic modelling to predict changes to GDP growth, GDP per capita, trade and foreign direct investment for the UK, EU and US across eight possible trade scenarios.

According to the report, a WTO outcome would “likely move the UK further from EU standards and over time significantly increase non-tariff barriers, harming the ability of UK businesses to sell goods and services to EU countries.”

This would be particularly problematic, it said, since the service sector, which includes financial and banking, dominates the UK economy and contributes to around 80% of GDP. Although the EU would also lose out under the WTO scenario, the report said, the effect would be “relatively minor.”

The best case scenario for the UK, the report said, would be a trilateral UK-EU-US agreement, or a TTIP-like agreement. This would cause UK GDP to be 2.2% higher ten years after Brexit, the report predicted, or 7.1 percentage points better than under the WTO rules scenario.

This scenario could also be “slightly better” than continued EU membership, the report said, and would be beneficial for both the EU and US.

However, such an arrangement is seen as “very unlikely in the current political environment, on both sides of the Atlantic,” it said.

Moving away from a “zero sum game”

The report recommends that the UK moves away from a “zero sum game” and towards a “positive sum game” as negotiations proceed, to ensure the best possible deal for all parties.

Trying to pick apart European unity is unlikely to result in a good deal for the UK, the report warned, since it is in the best interests of all EU member states to work together, and Europe’s “top political priority” is to discourage other member states from leaving the EU.

“The EU is likely to want to ensure that it does not give too much away to the UK during negotiations, and may seek to adopt a “zero sum game” approach to preserve the union,” said Ries.

Apart for in a trilateral agreement-type scenario, the report said, the potential economic gains and losses for the US after Brexit are relatively small.

“The US will greatly miss the influence and global perspective that the UK brings to EU decision making, particularly around security and defence,” said Ries.

“The UK’s EU membership often ensured that EU measures did not undermine NATO and the strong transatlantic partnership. The economic impact from Brexit it very much a secondary concern for the US,” he said.

Various trade scenarios could be better for the UK than WTO rules, said the report, but still lead to economic losses compared with EU membership:

Possible hard Brexit scenarios:

  • UK-EU free trade agreement – net UK GDP decline of 1.9% ten years after Brexit
  • UK-US free trade agreement – net UK GDP decline of 2.5% ten years after Brexit
  • UK-EU transitional zero-tariff agreement – net UK GDP decline of 2.1% 10 years after Brexit

Possible soft Brexit scenarios:

  • Norway option – net UK GDP decline of 1.7% ten years after Brexit
  • Switzerland option – net UK GDP decline of 2.4% ten years after Brexit
  • Remaining part of the Customs Union – net UK GDP decline of 1.8% ten years after Brexit

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