The British economy has been hit by the pandemic. Now, with talks on a new trade deal with the European Union in danger of collapsing, Johnson must decide: Is he trying to find common ground with Europe or is he leaving?
The empty-handed removal – which Johnson threatened to do on Friday – would disrupt trade when the transition period ends later this year, shaving more than $ 25 billion from the UK economy in 2021 compared to a scenario where there is agreed a free trade agreement, according to a CNN Business analysis based on forecasts by Citi and the Institute for Tax Studies. This would put the country even further behind in its efforts to recover from the historic shock caused by the pandemic.
“The combination of Covid-19 and exit from the EU single market makes the UK outlook extremely uncertain,” Laurence Boone, chief economist at the Organization for Economic Co-operation and Development, said in a report this week. “The steps taken to deal with the pandemic and the decisions taken on future trade relations will have a lasting impact on the UK’s economic course for the coming years.”
Little progress on the agreement
The clock is set for the United Kingdom and the European Union to compromise, with Britain losing its favorable trade position with the bloc at the end of December.
The meetings this week ended without major breakthroughs, and Johnson said on Friday that the country needed to prepare for a trade relationship similar to Australia. Australia does not have a comprehensive trade agreement with the European Union. Most trade is conducted according to the most basic rules of the World Trade Organization.
As Brussels “refused to negotiate seriously for many of the last few months,” Johnson said, “now is the time for our businesses to get ready, and for carriers to get ready and for travelers to get ready” for a no – ideal output.
However, there may be some hope for a deal. Johnson declined to rule out further talks, and EU Commission President Ursula von der Leyen wrote on Friday that her team would head to London next week to intensify negotiations as previously planned.
Fisheries rights and the framework for resolving future disputes remain crucial for both sides, according to Mujtaba Rahman, chief financial officer for the Eurasia Group, a political risk advisory firm.
“We do not believe that the agreement will overwhelm the fish, but we believe that the technical and political challenges it presents will be more difficult to overcome than many believe,” Rahman said on Thursday.
Johnson had said the terms of the future trading should be in place by mid-October to give businesses enough time to plan the outcome. This deadline has come and gone.
“As the Johnson administration separates itself from the coronavirus, the need for political victory, which can only be a deal, is greater than ever,” he said.
Alarm for businesses
Confusion over where Brexit is going next could not have come at a worse time for the UK.
Citi and IFS estimate that the UK economy will shrink by 9.4% this year. This would be the biggest drop since 1921, according to the Bank of England. The additional restrictions that come into force could make things worse.
A naughty break with the European Union at the height of the Koranic recession will prolong the recovery.
With a limited trade deal, the UK economy is expected to recover by 4.6% growth in 2021 before losing some momentum between 2022 and 2024, according to forecasts by IFS and Citi. Failure to reach a trade agreement with Europe will shave up to a percentage point of this level of growth. The difference is about 20 20 billion, or more than $ 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 be if the transition period were indefinitely extended.
With significant uncertainty blurring the outlook, businesses are expressing anxiety for the coming months.
In a survey of more than 950 executives released Friday by the Institute of Managers, about a quarter of those polled said they were not sure they would be ready for the end of the transition period.
“The prospect of a deal would not be scary enough, let alone faced with in the midst of a global pandemic,” said IoD senior policy adviser Allie Renison. “These disturbances will not overwhelm each other. If anything it will aggravate the pain for British companies.”