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No trade deal on Brexit could cost the UK economy $ 25 billion next year

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. ?

Both roads lead to a tough 2021 for Britain as the country battles the coronavirus and Brexit twins. But failing to secure a deal with the UK’s largest export market would amplify the pain.

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

9 and the exit from the EU single market makes the UK’s prospects exceptionally uncertain,” Laurence Boone, chief economist at the Organization for Economic Co-operation and Development, said in a report this week. “The actions taken to address the pandemic and the decisions made on future trade relations will have a lasting impact on the UK’s economic trajectory for years to come.”

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.

Rahman believes it is still in Johnson’s best political interest to strike a deal, given the criticism of his handling of the Covid-19 crisis.

“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.

The UK has opted for a regional approach in recent days as its coronavirus cases have soared, re-enforcing strict rules in Liverpool and preventing people from different families from meeting at home in London starting Saturday. This has led to criticism from both those concerned about the impact on the economy, and those who believe dramatic national measures are needed to keep the situation under control.

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.

The IMF cuts its global economic forecast for 2021 and warns of

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.”

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