The danger of no Brexit deal to UK economy

John Springford and Simon Tilford of the Centre for European Reform argue, there are three ways in which a “cliff edge” Brexit would severely damage the UK economy. EU tariffs would immediately be payable on imports from Britain, averaging about 4 per cent but varying hugely. British car exports would face a 10 per cent tariff. This would be hugely damaging for the motor industry, which relies on components crossing borders many times before a vehicle is assembled.

Second, the UK’s departure from the Customs Union would mean that rules of origin immediately come into force to determine the national origin of any product. “This process would be time-consuming and costly and many firms . . . would be unable to comply and would cease exporting to the EU,” say the CER authors.

...Britain’s threat to walk away from the negotiating table would carry weight if it risked damaging the European economy as well. But the pain for the EU would be nowhere near as great. Some central bankers argue that there will be substantial financial stability risks to the EU from a sudden end to the operation of EU law in Britain. But the CER’s authors think that Brussels could grant UK-based clearing houses temporary equivalence for a year to help contain the fallout.Instead, the economic risks are all on the UK side. “British exports of goods and services would shrink very sharply,” say the CER authors. “The hit to exports and to the attractiveness of the UK as a place to invest would in all likelihood provoke a sharp fall in the value of sterling.” This would lead to a rise in inflation, the erosion of disposable incomes, a fall in consumption and a deep recession.