Insurer's Brexit warning: UK will plunge into three-year recession if there is no transition deal

Emma Haslett
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Government Announces That The UK Is Officially In Recession
The report warned an extra 3,000 firms will go bust if there is no transition deal (Source: Getty)

The UK will plunge into a three-year recession and an extra 3,300 small firms will go bankrupt if the government cannot negotiate a transition deal after Brexit, an insurer has warned.

Insurer Euler Hermes, part of Allianz, said the number of insolvencies will rise 15 per cent year on year to 25,100 businesses if the there is no transitional period after the conclusion of Brexit negotiations in 2019.

GDP will contract by 1.2 per cent, with the recession lasting until 2022, compared with 0.9 per cent growth if the UK does agree a transitional arrangement.

Read more: EU "cannot deny" the UK lengthy Brexit transition: Varoufakis

Meanwhile, exports will fall as much as £66bn, £30bn for goods and £36bn for services, the report said.

"In real terms this would mean a drop of six per cent for total exports on the previous year, according to the research. The report predicts that the level of inward investment in British companies would fall by eight per cent."

“The new government must endeavour to settle on a transition deal as it will be next to impossible for the UK and EU to finalise and ratify a free trade agreement in the next two years at the same time as finalising the EU exit," said Ana Boata, European economist at Euler Hermes.

"By avoiding legal uncertainty and keeping trading arrangements with the EU unchanged, the UK economy would stay resilient for the duration. It allows more time for negotiations for a positive outcome for the next trade partnership. In our view, this will translate into tariffs on selective goods – two per cent to three per cent tariffs on average - and some add-ons on services.”

Read more: PM says free movement could be green lit for Brexit transition

"Brexit cliff edge"

Earlier today, Brexit secretary David Davis said he expected a transitional period of one or two years after Brexit negotiations conclude.

However, he added: "[No deal] would be better than a punishment deal. If that happens then [we will] walk away and we have to plan for that."

Meanwhile, earlier this week Chancellor Philip Hammond threw his weight behind hopes of a transition to avoid a "Brexit cliff edge".

“We need a transitional arrangement to get from where we are now to whatever future arrangements we agree with the EU," said Hammond.

"The most important ask from business – almost more important than what the end result looks like – is that we have a smooth path to get there. Because anything that created a cliff edge in 2019 would be very, very damaging to the UK economy.”

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