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Summary
- Bank of England governor Andrew Bailey said Britain would face a bigger economic shock than the Covid-19 if it fails to secure a trade deal with the EU
- Bailey said the no-deal arrangement would cause severe economic hardships by disrupting the crossborder trade
- Chancellor Rishi Sunak had said the UK should not go ahead with a deal with the EU at any price
The UK could see a bigger economic slump than the coronavirus pandemic has caused if Britain decides to move ahead without a trade deal with the European Union (EU), Bank of England (BoE) Governor Andrew Bailey has cautioned.
While addressing the parliamentarians, Bailey said not only the no-deal Brexit would cause severe economic hardships and will disrupt the crossborder trade, but it will also ruin the relationship between London and Brussels.
Responding to a question by the policymaker about the UK’s economic prospects if it doesn’t reach a deal before the 31 December deadline, Bailey said the long-term impact would be much more damaging.
Earlier, Chancellor Rishi Sunak had said the UK should not go ahead with a deal with the EU at any price, emphasising that the coronavirus pandemic poses a bigger threat to the business and financial activities than a no-deal Brexit. But on 23 November, Bailey had stressed that a trade agreement between the UK and the EU is in the best interest of both sides.
In January, Britain left the EU, but the trade, which is worth £670 billion remain unaffected so far due to the transition period. Though mediators have been trying hard to carve out a deal that will enable the flow of trade to go tax free, however, the progress has been sluggish. Chief Negotiator of the EU Michel Barnier said that the fundamental differences are yet to be sorted out.
In the meantime, UK business leaders have been pushing Prime Minister Boris Johnson to secure a trade deal with the EU in order to secure smooth trade as already most companies are under stress due to the pandemic and another round of lockdowns. The UK business groups feel no-deal Brexit will attract heavy taxes, quotas and other regulatory hurdles in conducting business activities with the EU nations and devastate the current trade understanding.
Also read: How prepared is the UK auto sector for a no-deal Brexit?
A report by the New Economics Foundation and University College London’s European Institute states that if there is a no-deal Brexit, new compliance rules in order to continue the exchange of data with the EU will impact the business.
The report also found that smaller firms would be unreasonably impacted with an average compliance cost of £3,000 for micro-firms, £10,000 for small, £20,000 for medium and £163,000 for large businesses.
One of the major obstructions in the deal is that the UK wants to control its water, whereas the EU too wants easy access as most of its ships sail through the English waters most of the time. But the talks haven’t reached any conclusion as the UK isn’t ready to budge while the bloc, which is the UK’s biggest fish market, is pressurising that it would impose tariffs it is not allowed to sail its vessels in the English waters.
