Hard Brexit to batter British economy, study suggests

Chancellor Philip Hammond maintains a no deal will be avoided
Chancellor Philip Hammond maintains a no deal will be avoided

Conservative plans for a hard Brexit would plunge the UK into immediate recession, cost the economy £400 billion and wipe 18% off GDP growth by 2030, a leading investment bank has warned.

Research by Rabobank also shows that any form of Brexit - 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 or £7,500 blow respectively.

Prime Minister Theresa May said earlier this week her Government was putting in place plans for no deal, 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 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”.