The Conservative Party’s plans for a “no deal” hard Brexit would plunge the UK into immediate recession, cost the British economy £400 billion and wipe 18% off GDP growth by 2030, a leading investment bank has warned.
Research carried out by Rabobank also shows that any form of Brexit – whether hard, soft or through a new free trade agreement (FTA) – would be detrimental to the economy and British workers.
Under a no deal scenario, British workers would be left £11,500 poorer, while an FTA or soft Brexit would see working Britons stomach a £9,500 and £7,500 blow respectively.
Prime Minister Theresa May said earlier this week her Government is putting in place plans for a no deal scenario and the research comes after Chancellor Philip Hammond warned of a Brexit “cloud of uncertainty” hanging over the economy.
To compound matters, the UK was also singled out on Tuesday by the International Monetary Fund (IMF) as the only major economy not to see its growth forecast upgraded.
Hugo Erken, senior economist at Rabobank, said: “There has been extensive economic research into the immediate effects of Brexit, but they have largely focused on trade and investment, whereas implications of the different factors that affect productivity is only marginally or partially addressed.
“By looking at dynamics such as innovation, competition, knowledge and human capital, how they will change and what effects this will have on the structural make-up of the UK and European economy, our research shows that the long-lasting impact of Brexit is likely to be more severe than initially anticipated.”
Rabobank said that even if the UK negotiated a new free trade agreement, like Switzerland’s, it would cost Britain 12.5% of GDP growth by 2030. A soft Brexit, where the UK remains part of the European internal market but exits the customs union, would result in a 10% hit.
According to the research, a hard Brexit implemented in 2019 without a transition period would result in the UK economy “immediately falling into a two-year recession period”.
Hard Brexit would also cause a jump in unemployment from 4.6% in 2018 to 6.2% in 2020, but this would only be temporary and quickly return to “long-term structural unemployment levels”.
For the FTA and the soft Brexit scenario there would also be a recession, Rabobank said, but “milder and much more short-lived”.
If negotiations in Brussels result in a hard Brexit, UK GDP is expected to decline by 2.4% following its departure in 2019.
However, if the UK and EU were to agree on a free trade agreement, GDP would still fall but only by 1.1% and by just 0.3% in a soft Brexit scenario.
For countries in the euro area, any form of Brexit would see a 2% hit to EU GDP by 2024, the study said, with the Netherlands bearing the brunt because of its closer trade relationship with the UK, accruing losses of around 25 billion Euros to 35 billion Euros.
Rabobank’s study used macro-econometric modeling to assess the effects of the UK leaving the European Union and all three scenarios were benchmarked against a situation where the UK would continue to be a member.