The EU economy as a whole is potentially too fragile to want to make an example of the UK
- Monday, May 22, 2017
Research from think tank Civitas has pointed out that if the Brexit negotiations fail to reach agreement and future trade is conducted under the World Trade Organisation (WTO) terms, the cost to EU business would be £12.9bn per year in tariff charges to import goods into the UK. British firms would equally face tariffs of £5.2bn per year to export to Europe. These figures show the extra costs that ultimately will fall upon consumers if a free trade agreement fails. It is clear that both economies will be disadvantaged.
The EU economy as a whole is potentially too fragile to want to make an example of the UK. The Organisation for Economic Co-operation and Development (OECD) predicts that the UK could lose 3% of GDP growth over the next 4 years if we end up with a ‘Hard Brexit’. This assumes there would be no deal in place and therefore the default WTO tariffs would apply. These tariffs range between 4% and 18% depending upon the particular imported goods. The OECD felt that the EU would lose about 1% of GDP growth. The EU is arguably currently less able to tolerate a 1% loss than Britain’s projected 3% loss. It is therefore not surprising that Sweden and Ireland have both called for a ‘Soft Brexit’ The Nordic block in general believe there is nothing to be gained from a fractious divorce. Swedish companies are already feeling the impact of a devalued pound. Swedish exports to the UK have fallen by 19% in Q3 leading to fewer jobs in Sweden.
Chris DaviesChartered Financial Adviser
Chris is a Chartered Independent Financial Adviser and leads the investment team.