If the UK fails to secure a trade deal with the EU before the end of the year, the Brexit transition period will cause the economy to suffer heavily, most likely losing over half of its 2021 economic growth rate, further delaying an economic recovery from the consequences of the pandemic, The Guardian reported, citing a report by accountancy firm KPMG.
The report stresses that a failure to agree on a trade deal will bring enormous economic damage to a country coping with its deepest recession since records began.
With a year of the pandemic across the globe, British companies, interconnected with Europe and reportedly poorly prepared for the new international trade normal won’t be able to bear the closed borders and slowed trade flow to boost GDP growth. KPMG says GDP growth will be 4.4% in 2021 without a deal, compared with 10.1% if the UK and the EU maintained existing relations at the current level.
According to the report, the World Trade Organization terms, which will come into force if a trade deal is not ratified, would delay the point of pre-pandemic level recovery of the UK economy by 2 years – till 2024 – later than otherwise. The accountancy firm forecast predicts GDP growth to be 7.2% next year, with the UK economy returning to pre-pandemic peaks by the end of 2022, if a limited deal with the EU is reached.
As negotiations are expected to reach a critical phase this week, and both sides still discuss the key disputable issues, including fishing rights and fair competition rules for business, the European Parliament may still postpone a vote on a deal until December 28, in accordance with an emergency plan in case deal talks stall.
The European Parliament still expects at least a last-minute agreement to be reached, though it has warned that this will have great costs for the economy as the EU membership had more trade and economic preferences.
“The impact of Brexit will single the UK out among advanced economies next year,” the British newspaper The Guardian quoted Yael Selfin, chief economist at KPMG UK. Selfin stated that if a COVID-19 vaccine appears this year, the benefits of that, such as a boom in travelling, would be undermined by a no-deal Brexit.
The accountancy firm expects the British GDP to fall by 11.2% this year, as lockdown measures to contain the spread of the disease cause unprecedented disruption for companies.
“There will be changes even with a deal, but the initial destruction next year would be sharper without one. We’re hopefully out of the woods when it concerns COVID, but we must still remember the UK is entering another period where there is still going to be some sort of a shock,” said Selfin.