Noting that the UK economy has been hit hardest by most of the advanced countries by the coronavirus pandemic, the debate could not be more intense than it is today, given the final phase of the Brexit negotiations. The country’s GDP may turn out to be lower than it would potentially be if the country remained within the European Union, regardless of the outcome of the talks.
However, making it possible to conclude a trade agreement now will make it easier to avoid serious obstacles to bilateral trade from 1 January. Leaving without an agreement, meanwhile, would mean that Britain’s exit from the common European market would cost it much more in the long run than the pandemic, economists say. Both sides claim that it is up to the other interlocutor to make the crucial move before the end of the transition period in just one month.
The pandemic is causing the country’s most dramatic economic downturn in nearly 300 years since the Great Frost of 1709. By the first quarter of 2025, GDP will be 3.1% lower than forecast in March this year, according to the calculations of the Office of Budget Manager. This body, which exercises budgetary oversight, further adds that the loss in economic production will be permanent. In another report, the Office points out that the process of moving to a free trade agreement with Brussels will deduct 4% of GDP in the long run. In the event that no agreement is reached, this means that trade relations between the two sides will be subject to the regulatory framework of the World Trade Organization, which will translate into a loss of 1.5% more than GDP. According to Bloomberg Economics economist Dan Hanson, the price as a whole will be much higher at 7% of GDP.
Employment will also be hit hard. Unemployment in 2021 is expected to rise to 7.5%, ie 2.6 million people will be out of production, provided that a trade agreement is reached with the European Union. Otherwise, the unemployment rate will reach 8.3%. The financial services industry and manufacturing, which has a clear extroverted orientation, will be hit hardest without agreement – by manufacturing we mean, among other things, the automotive, clothing and food industries.
Concerns are being raised that the money and time spent dealing with the pandemic has left companies unprepared to deal with potential losses and manage problems in the future. According to a survey by the Bank of England, which involved the country’s CEOs, less than 4% said they were fully prepared for the end of the transition period on December 31.
Before the pandemic broke out, companies in the UK showed restraint in their spending because they expected greater clarity about the framework that would define bilateral post-divorce transactions. The pandemic added an extra weight, decimating investment for the current year and jeopardizing the ability of businesses to implement it in the future. Finally, regardless of the outcome of the negotiations, the adjustment period will make it even more difficult for them to figure out where to invest profitably in the future. WTO membership will worsen the situation for a longer period, affecting the already weakened productivity.