Euromonitor International’s No-Deal Brexit Scenario Highlights Worst Economic Outcome

The current deadlock in Brexit negotiations has put the focus back on the increased possibility of the UK leaving the European Union (EU) in 2019 with no deal. Euromonitor International has assigned a 30-40% probability to a No-Deal Brexit scenario which 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 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 2016. In this situation, 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: In a No-Deal scenario in 2019, annual real GDP growth in the UK would fall to just 0.4%, the lowest in a decade.

Consumers: As consumers in the top and middle segments will be hit by the weakened investment environment and higher unemployment, the bottom segment of consumers (households with an annual disposable income of less than US$45,000) will be the only group to expand with an increase of 200,000 households in 2019 compared to the baseline.

Cities: The risk of poverty in London will increase as top and middle income consumers are forced down to lower income brackets. Social Class D (households with an annual disposable income of US$25,000-US$45,000) will have 67,500 more households in 2021 versus the baseline. This will mean opportunities to target consumers who are seeking value and frugal choices.

Industries: All consumer goods industries will see a negative performance in a No-Deal Brexit scenario compared to the baseline, with discretionary items hit the hardest and those reliant on imported products. For Soft Drinks, bottled water will fare the worst in actual terms with lost sales of 70.0 million litres by 2021.

A silver lining in a No-Deal Brexit scenario is for inbound tourism, where the further depreciation of the Pound is likely to drive up tourist arrivals, especially from the USA and Europe.

Find out more in our first Quarterly Brexit Report for Q3 2017.

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.