Quarterly Brexit Report Q4 2017: A No-Deal Brexit Can’t be Ruled Out
In early December 2017, a breakthrough was made in negotiations between the UK and European Union (EU) covering the principles of the Brexit divorce bill, paving the way for the second phase of discussions to begin. However, the key question of how to tackle the Irish border remains a sticking point and businesses are no closer to understanding what sort of a deal to expect. A No-Deal Brexit can’t be ruled out and Euromonitor International has assigned a 35-45% probability to this 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. This article has been updated in line with the Quarterly Brexit Report update.
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Economy: In a No-Deal scenario in 2019, given heightened uncertainty and waning investment, the unemployment rate will peak at 6.0% in 2021, against the 5.6% baseline scenario.
Consumers: More pessimistic overall dynamics of the economy, potentially encompassing real estate and stock markets, are expected to have the biggest negative impact on total net-wealth of Social Class A, which represents adults with more than half a million net assets and accounts for about one tenth of the UK population.
Cities: In Birmingham in 2021, there will be 17,000 fewer upper-middle-class or Social Class B households under a No-Deal Brexit compared to baseline forecasts, which will simultaneously increase the number of households in Social Class D.
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 as well as those reliant on imported products. A No-Deal Brexit would result in a sudden stagnation in outbound travel from the UK, with 4.6 million fewer trips in 2021, relative to the baseline scenario.
A silver lining in this scenario is for inbound tourism, where the depreciation of the Pound is likely to drive up leisure tourism.
Source: Euromonitor International
Find out more in our updated Quarterly Brexit Report for Q4 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.