Supply chain costs push EU’s potential hard Brexit bill to £100bn
European nations could face a cost of as much as £100bn if the EU and the UK do not agree a Brexit trade deal, according to new analysis published today.
Under a so-called hard Brexit, in which the UK trades with the EU under World Trade Organisation rules, the cost of rerouting European supply chains would hit €62bn (£55bn), according to models from Oxford Economics, a consultancy.
The effects would be “far from disastrous” for the EU as a whole, which has a larger economy overall than the UK. However, Ireland and the Czech Republic are “particularly exposed” to an economic hit from a “no deal” scenario, with a potential hit of more than one per cent of GDP compared to baseline predictions, said Neal Kilbane, a senior economist at Oxford Economics.
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Meanwhile, Hungary, the Netherlands and Denmark could see gross output fall by almost one per cent if there is no deal.
The UK is “still likely to be the biggest loser from crashing out of the EU without a deal”, the report noted, with an estimated total of £125bn of combined direct and indirect impacts.
Previous estimates of the hit to the EU did not take into account the complexity of supply chains, in which materials can cross the Channel, soon to be the EU border, multiple times before a finished product emerges.
“Given the increasingly complex and international nature of modern day supply chains, the direct impact will have consequences that reverberate across sectors and national borders”, Kinbane wrote.
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Meanwhile, the new report updates the assessment of the broader impact to economic activity from suppliers to firms selling to the EU market. While these suppliers are not directly linked to exports to the EU, their businesses will still be affected if failure to agree a trade deal reduces demand – as the vast majority of economists predict.
“In addition, a significant proportion of the UK supply chain is located in Europe, much larger than the reciprocal share of the EU supply chain located in the UK,” the report said.
The risk of a hard Brexit remains “elevated”, Kilbane said.
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