A report published by the UK-based National Institute of Economic and Social Research (NIESR) has predicted a 3½ decrease in the British economy to 2029 under the terms of the current Brexit deal.

The report by the independent body is one of the first forecasts of how Britain will fare in the coming years outside of the EU, under the terms of Boris Johnson’s deal.

Uncertainty is the primary theme of the report which cites trading relationships between Britain and the EU as a critical influencing factor on economic trends.

Predictions in the report are based on the proposed Free Trade Agreement (FTA) between Britain and the EU being in place at the beginning of 2021. An FTA would allow the UK time to negotiate new trading arrangements with other countries.

It says that with the implementation of the FTA uncertainty would be lifted but customs and regulatory barriers would hinder goods and services trade with the continent, leaving all regions of the United Kingdom worse off than they would be if the UK stayed in the EU.

However, it questions the likelihood of having an FTA in place in 2021 given the length of time the EU has taken to negotiate and implement other FTAs. When an FTA can be agreed and implemented is a further source of uncertainty according to the report.

It says, ‘The economic outlook is clouded by significant economic and political uncertainty and depends critically on the United Kingdom’s trading relationships after Brexit. Domestic economic weakness is further amplified by slowing global demand.

We would not expect economic activity to be boosted by the approval of the government’s proposed Brexit deal. We estimate that, in the long run, the economy would be 3½ per cent smaller with the deal compared to continued EU membership.’

The report also warns of the direct impact on businesses of operating under an FTA.

It says, ‘Despite the name, trade typically does not move ‘freely’ under FTAs and UK businesses will experience many more frictions in trading with the EU than they do now. These frictions include non-tariff barriers such as customs and rules of origin requirements, regulatory burdens and barriers to market entry such as the loss of passporting in financial services. The extent of these non-tariff barriers to trade will be determined in the next stage of Brexit negotiations.’

The report says the impacts of Brexit are already being felt with the economy estimated to be 2½ per cent smaller now than it would otherwise have been as a result of the 2016 Brexit vote.

(Image via flicksmores via creativecommons.org)