Quarterly Brexit Report Q1 2018: Transition Agreed but No-Deal Brexit Still Plausible

This article has been updated in line with the latest Quarterly Brexit report Q1 2018.

In March 2018, the United Kingdom (UK) and the European Union (EU) came to a conditional agreement on the Brexit transition period, paving the way for negotiations on future relations to get underway. Although this makes a Brexit deal more likely, the delay in getting to this first milestone and the limited time left to come to an agreement that all member states will ratify mean that a No-Deal Brexit remains plausible. Euromonitor International has assigned a 35-45% 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 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: 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: In a No-Deal Brexit, discretionary spending for the bottom segment will fall by 5.7% in real terms over the 2016-2021 period, compared to the baseline forecast of a 9.0% fall during the same period.

Cities: Birmingham is forecast to have 28,000 fewer Social Class B households in 2021 under a No-Deal Brexit compared to a Light Brexit. The loss of highly productive and well-paid jobs will constrain retail development, especially in high-end goods, as households will exhibit more frugal consumer expenditure choices.

Industries: For alcoholic drinks, while wine and spirits would face the brunt of the downgrades, beer and cider would also not be spared. The UK’s ascendant micro-brewing industry could provide a silver lining, but only if recessionary fears are not confirmed.

A silver lining in a No-Deal Brexit scenario is for leisure tourism, which would be given an additional boost as further depreciation of the pound would make the UK even more affordable and attractive to international tourists.

 

Find out more in our Quarterly Brexit Report for Q1 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.