The British economy was hit by the pandemic. Now, after a meeting of EU leaders has decided that not enough progress has been made in talks on a new trade deal with the UK, Johnson faces a difficult choice: continue discussions beyond a self-imposed deadline or walk away. ?
Leaving empty-handed would create disruptions to trade when the transition period ends by the end of the year, reducing the UK economy by more than $ 25 billion in 2021 compared to a scenario where a limited free trade agreement is agreed, according to a business analysis by CNN based on forecasts from Citi and the Institute for Tax Studies. This would put the country even further behind in its efforts to recover from the historical shock triggered by the pandemic.
“The combination of Covid-1
Little progress in the deal
Time is running out for the UK and the European Union to come to terms, with Britain set to lose its favorable trading status with the blockade at the end of December.
This week’s meetings ended without major breakthroughs. According to Mujtaba Rahman, CEO for Europe of Eurasia Group, a political risk consultancy firm, fishing rights and the framework for resolving future disputes remain crucial.
“We don’t think the deal will fail on fish, but we think the technical and political challenges it presents will be more difficult to overcome than many believe,” Rahman said Thursday.
Johnson said the terms of the future business deal needed to be finalized by mid-October to give the companies enough time to plan for the outcome. That deadline has now expired.
On Thursday, the European Union expressed its willingness to continue discussions in the coming weeks. But UK chief negotiator David Frost said on Twitter that the EU Council’s conclusions left him “disappointed” and that Johnson would set out the UK’s stance on Friday.
“As Johnson’s government tears apart from the coronavirus, the need for a political victory, which only a deal can be, is greater than ever,” he said.
Companies sound the alarm
The confusion over where Brexit will go couldn’t come at a worse time for the UK.
Citi and IFS estimate the UK economy will contract 9.4% this year. This would be the biggest drop since 1921, according to data from the Bank of England. The additional restrictions that come into effect could make matters worse.
A messy break with the European Union on top of the coronavirus recession would only prolong the recovery.
With a limited trade deal, the UK economy is expected to bounce back with 4.6% growth in 2021 before losing some momentum between 2022 and 2024, according to IFS and Citi projections. Failure to reach a trade agreement with Europe would mean reducing that level of growth by one percentage point. The difference comes to almost £ 20 billion, or over $ 25 billion.
According to Citi and IFS economists, even the best-case scenario of a limited trade deal would leave the UK economy 2.1% smaller in 2021 than it would have been if the transition period had been extended indefinitely.
With significant uncertainty blurring the outlook, companies are expressing anxiety for the coming months.
In a survey of more than 950 executives released Friday by the Institute of Administration, about a quarter of respondents said they were unsure whether they were prepared for the end of the transition period.
“The prospect of no deal would be daunting enough, let alone facing it in the midst of a global pandemic,” said Allie Renison, senior IoD policy advisor. “These disruptions will not cancel each other out. If anything, they would aggravate the pain for British businesses.”