What Would Happen To The UK In A No Deal Brexit?

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As the UK braces itself for another parliamentary vote on the PM’s Brexit plan tomorrow, the risk of a no deal Brexit is growing.

If parliament votes against the government again, it will be offered a vote on Mach 14th). This vote will be to decide whether to press ahead with a no deal Brexit or pursue an extension to the deadline of March 29th.

With everyone from businesses to the BOE warning against the damage of a no-deal Brexit, let’s take a look at the consequences such an outcome might entail.

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Economic Contraction

Government forecasts leaked last year indicate that leaving the EU without a deal could cause a severe economic shock for the UK. In such circumstances, the economy could contract by around 8% over a 15-year term following the departure date. This would be the biggest downturn in UK peacetime history.

Inflation up, Interest Rates Up

The BOE recently cut its growth forecasts due to the uncertainty around the Brexit outcome. It has warned that a no deal would cause a catastrophic shock to the UK economy, far worse than the 2008 global financial crisis. This could see interest rates rise as high as 5.5% as inflation soars to around 6.5%.

Housing Market Crashes & Unemployment Surges

The BOE governor, Mark Carney, also warned that the UK housing market could collapse by around 30%. He cautioned that commercial property prices could crash by nearly 50%. Alongside this downturn in home prices, unemployment could skyrocket from current lows to as high as 7.5%.

British Pound to Collapse

If the UK leaves without a deal, the BOE currently projects that the currency exchange rate between GBP and both USD and EUR could collapse by around 25%. This would lead to sharp, negative consequences for UK families traveling abroad. It would also significantly impact businesses importing to the UK.

Trade to Become A lot More Difficult

Since joining the EU, Britain has enjoyed tariff-free trading with its many EU trading partners. However, following Brexit, the UK will once again become subject to tariffs when trading with other EU countries.

In a no-deal scenario, these tariffs will not have been set. And, in some cases, trading may be postponed altogether. Supply chains will be heavily disrupted, as businesses navigate the new trading landscape and await further details on the practicalities of trade.

Trade Routes to Become Congested

In terms of the practicalities of trade, one area which will immediately become an issue is that of trade routes. With around 10,000 lorries a day passing through the port of Dover, the single customs union has allowed for ease of passage for most of these.

However, once customs checks become more stringent, delays will inevitably ensue. Current research suggests that just an added two-minute delay at the pot could cause up to 58 miles of queues. We can expect the same to happen in mainland Europe, adding significantly to delivery times.

Travel Could Be Shutdown

In the event of a no deal Brexit, all manners of legal certifications suddenly become defunct. In the case of many professionals working in the EU, they might suddenly find their qualifications are no longer recognized. This means they can no longer practice.

Similarly, flights to and from the EU might be grounded as the relevant confirmations become obsolete. For the roughly 1.3 million Britons living in the EU, and the estimated 3.7 million Europeans living in the UK, living and working rights would suddenly become unclear.

As yet, no one knows what will happen.

Irish Border

One of the most worrying aspects could be what happens to the border with Northern Ireland. In a no deal scenario, the border between the Republic and the North would become a hard line between the EU and the UK. Customs checks would occur in full swing which could cause severe repercussions for the peace process there.

For now, the market awaits the outcome of the next vote due tomorrow. If May fails again, the chances of all of the above occurring, suddenly surge higher once again.


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