Brexit: 100 Days to Go and Still No Deal in Sight

With 100 days left before the United Kingdom (UK) is set to leave the European Union (EU) on 29^th March 2019, Brexit is no closer to a resolution with new uncertainty about whether Brexit will even happen.

Despite Theresa May and the EU reaching a Brexit Withdrawal Agreement in November 2018, which was endorsed at an extraordinary EU summit on the 25^th November, alongside a political declaration on future relations, the deal has only deepened the divisions in the UK government. In a tumultuous December, the government was found in contempt of Parliament for the first time in history for failing to publish the legal advice on Brexit. The meaningful vote on the deal in the House of Commons was postponed to January 2019 and Theresa May survived a vote of no confidence by her own party, after agreeing not to stand in the next general election.

Following the pessimism surrounding Theresa May’s agreement with the EU and a lack of any clear alternative, Euromonitor has increased the probability of a Light/No Brexit scenario, although a No-Deal remains the more likely outcome, after our baseline scenario which incorporates a delayed deal.

With the government’s own Brexit analysis confirming that the UK economy will be worse off under every scenario, and the EU making it clear that there will be no renegotiation of the current deal (despite Prime Minister May seeking more assurances on the Irish backstop), Brexit itself is no longer certain as the calls have grown for a second referendum to let the people decide. Additionally, the EU has confirmed that the UK could revoke article 50 without approval from other EU members, effectively cancelling Brexit. If there is still no agreement by 21^st January 2019, the government must make a statement on how it intends to proceed.

Euromonitor International’s Brexit Scenarios Tool includes three possible outcomes to help understand the range of impacts on the UK economy, industries and consumers:

1. A delayed Free Trade Agreement baseline scenario, where the UK and EU reach an agreement on a customs union for goods (under either a Conservative or Labour government) at the end of a transition period in 2020.
2. A No-Deal Brexit scenario follows a breakdown in negotiations and the UK leaving the EU without a deal and reverting to World Trade Organization conditions.
3. A Light/No Brexit scenario includes the possibility of a Norway-style arrangement, or a second referendum, which results in staying in the EU.

Additionally, Euromonitor has put together a range of No-Deal sub-scenarios, highlighting quite how uncertain the situation is. For example:

• A disorderly No-Deal Brexit could make annual real GDP contract by 0.7-2.1% in 2019. Severe disruption at the border lasts for over three quarters. Trade declines by another 10.0 percentage points relative to the most likely No-Deal scenario in 2019. Falling incomes and higher uncertainty about the chaos lead to a financial market crash and a deeper recession.
• However, in a more optimistic No-Deal scenario, the EU exit is softened (eg with proper contingency planning) and trade disruptions and negative spillovers could be mitigated. Annual real GDP growth declines only marginally to 0.8-1.8% in 2019 and 0.2-1.6% in 2020.

Did you know: In a No-Deal scenario

Economy: Vulnerable to political uncertainty, the pound would depreciate and inflation could rise by a cumulative 1.4 percentage points relative to the baseline over 2019-2022.

Consumers: At the top of the wealth pyramid, Social classes B and A would see much slower growth in case of a No-Deal Brexit, potentially losing 423,000 and 385,500 adults, respectively, compared to the baseline forecast.

Cities: Southampton’s middle segment will best weather the effects of a No-Deal Brexit. Over 2017-2022, the city will only see a 1,000 fall in the number of middle-segment households compared to baseline forecasts - much less than similar-sized Sheffield (-7,100) or Cardiff (-3,600).

Industries: Supply chains would be disrupted if the UK was not able to access the EU Excise Movement & Control System (EMCS).

Find out more in our Quarterly Brexit Report for Q4 2018.

Euromonitor International’s Brexit Scenarios Tool helps clients to understand the impact of different Brexit scenarios on our baseline forecasts for the UK economy, industries and consumers. It offers a range of outcomes, providing the tools to stress-test strategy, plan ahead and remain profitable in these challenging times.