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    The danger of no Brexit deal to UK economy

    Publications

    In a TV interview on Monday evening, the Prime Minister, Theresa May again repeated her mantra that “no deal would be better than a bad deal” and that Britain has to be prepared to walk away from the table. According to an article in the Financial Times, there are two reasons why the UK-EU talks might collapse into a disorderly Brexit. Firstly, Britain is being asked by the EU to pay billions into the bloc’s budget, a demand London firmly resists. The EU also insists that the UK must maintain freedom of movement and subservience to the European Court of Justice during any transitional period after March 2019. Secondly, a lot of Conservative politicians, and a few ministers, genuinely believe Britain can walk away from the talks without incurring much economic damage. Many business leaders and economists strongly disagree with this assessment. Britain’s threat to walk away from the negotiating table would carry weight if it risked damaging the European economy as well. But the potential pain for the EU would be nowhere near as great. John Springford and Simon Tilford of the Centre for European Reform argue, the economic risks are all on the UK side. “British exports of goods and services would shrink very sharply,” say the CER authors. “The hit to exports and to the attractiveness of the UK as a place to invest would in all likelihood provoke a sharp fall in the value of sterling.” This would lead to a rise in inflation, the erosion of disposable incomes, a fall in consumption and a deep recession.

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