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Against all the odds, the UK Prime Minister, Theresa May, and the EU have managed to reach a provisional Brexit Withdrawal Agreement, which is due to be officially confirmed at an extraordinary EU summit on the 25th November, alongside a political declaration on future relations. The UK cabinet initially agreed to back Theresa May’s Brexit agreement. However, this is by no means a done deal. It still needs to be voted through the House of Commons and with many resignations and letters of no confidence in the Prime Minister doing the rounds at Westminster, since the cabinet meeting, turbulent times and uncertainty are set to continue for the UK economy. A No-Deal Brexit scenario still can’t be ruled out, while the future of the current Prime Minister and government is in question.
In a No-Deal Brexit, Euromonitor International predicts that UK real GDP growth will slump to just 0.5% in 2019 and 0.6% in 2020, which would be the lowest since the Global Financial Crisis of 2009.
According to Euromonitor International’s Brexit Scenarios Tool, all industries in the UK (covered by our Analytics models) will be negatively impacted by a No-Deal Brexit. The disposable incomes of the richest consumers will contract, as people move down the income pyramid, resulting in a corresponding increase of the poorest consumers.
The Brexit Withdrawal Agreement, if ratified, essentially confirms the terms of the UK’s divorce from the EU with previously agreed payments, citizens’ rights and a transition period set to end in 2020. The sticking point had been the Irish border issue during the backstop (the period after the transition ends and before a new Free Trade Agreement takes place). This has been overcome by an agreement to a UK-wide customs area, with deeper relations for Northern Ireland.
While Theresa May has positioned the current agreement as the best deal possible, there are members of the UK government who would prefer a Canada-style Free Trade Agreement or a “Norway for Now” option. The calls for a second referendum are also growing. Additionally, the Democratic Unionist Party (DUP) has always stated that it will not accept Northern Ireland being treated differently from the rest of the UK. This difference would also lead to Scotland potentially seeking a unique arrangement with the EU as well. Finally, the details of any future relations between the EU and the UK are yet to be determined, essentially resulting in a “Blind Brexit scenario”. Will parliaments be ready to back the unknown?
Economy: The Pound would depreciate by another 10.0-11.0% against the US dollar and the euro, causing further increases in import prices and inflation rising to 2.7% in 2020.
Consumers: The top segment’s real spending growth over 2017-2022 will slow to 15.2% (from 21.5% baseline forecast). In particular, real growth in the top segment’s housing spend will slow to 26.8% over this period (from 33.8% baseline forecast) due to weaker demand and lower price rises, making housing the category on which the top segment is expected to cut back their spending the most in a No-Deal Brexit.
Cities: Over 2012-2017, real disposable income per household edged up by a dismal 3.2% in Leeds compared to the UK average of 7.1%. A No-Deal Brexit would diminish hopes of rejuvenating the struggling northern city’s economy by reducing income and household expenditure.
Industries: The reliance on importing toilet paper and paper towels to the UK could push up the cost of tissue products significantly, if a trade agreement with the EU is not reached. A high proportion of tissue products are imported from EU member state Sweden, thus the No-Deal scenario could have a potentially damaging effect.
Find out more in our Quarterly Brexit Report for Q3 2018.
Euromonitor International has assigned the probability of a No-Deal Brexit scenario to 38-48%. The delayed Free Trade Agreement baseline scenario stands at 42-52%. A No-Deal Brexit would result from a breakdown in negotiations, which would mean that the UK leaves the EU in 2019 without a trade deal and reverts to World Trade Organization (WTO) conditions with higher trade barriers. It would also mean supply chain disruptions and shortage of some goods in the short-term. 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.
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.