This article has been updated in line with the Quarterly Brexit Report Q2 2018 update.
Brexit negotiations have continued to be characterised by slow progress, despite the conditional agreement on a transition phase earlier this year. The UK government has been dragging its heels on publishing a White Paper outlining its final position on future relations with the European Union (EU), as the government remains divided over what it wants post-Brexit. However, pro-European voices have got louder with members of parliament pushing for a final say over any Brexit deal. Euromonitor International has decreased the probability of a No-Deal Brexit scenario to 25-35% as the probability of a Delayed Free Trade Agreement has increased. A No-Deal Brexit would have the most negative impact on the UK economy, industries and consumers. The scenario is a result of a breakdown in negotiations, which would mean that the UK leaves the EU in 2019 without a trade deal and reverts back to World Trade Organization (WTO) conditions with higher trade barriers. It would also mean the loss of passporting rights for the important financial sector - financial intermediation, real estate, renting and business activities made up a third of the UK’s Gross Value Added in 2017. In this scenario, uncertainty in the UK increases and investment declines alongside a fall in labour productivity and the value of the Pound, all of which will contribute to UK economic output declining by around 3.0% from the baseline in 2019-2023.
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Economy: Dropping out of the EU’s single market in 2019 without a transition period would be devastating for UK businesses and the economy. A No-Deal Brexit would cut real GDP growth to 0.3% in 2019.
Consumers: The UK’s total consumer expenditure is set to rise by only 4.9% in real terms during 2017-2022 in a No-Deal Brexit, down from the 7.1% baseline real growth forecast.
Cities: Liverpool is forecast to have 14,300 more Social Class E households (the poorest) in 2022 under a No-Deal Brexit compared to baseline predictions. Households are likely to neglect mid and high-end products in favour of more frugal spending choices.
Industries: With the UK economy in a state of flux, and a decline in the value of sterling, travel departures would initially stagnate. The USA would feel most of this by losing almost US$1.0 billion in receipts from the UK by 2022. British travellers would trade down to European destinations, but even Spain, an established British favourite, would lose US$0.9 billion in receipts.
Find out more in our Quarterly Brexit Report for Q2 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 will enable you to be prepared for a range of outcomes, providing the tools to stress-test strategy, plan ahead and remain profitable in these challenging times.