THE tumultuous year that has followed the Brexit vote could turn out to be merely the “calm before the storm” with predictions that the pound could fall even further, the economy and wages could nosedive and more businesses could quit the UK, academics have warned.
Tomorrow marks the first anniversary of the Brexit referendum — but one year on the government is in disarray, the British union is straining at the seams, and the economy is hanging by a thread.
To mark the anniversary, economists have compiled a mammoth report predicting how Brexit will unfold, which will make for grim reading for Theresa May as negotiations begin.
Economists agree Britain is entering the negotiations with a “weaker hand” than the EU27 and could have to make concessions on flagship pledges such as cutting immigration, European spending and red tape. Mrs May insists “no deal is better than a bad deal” — but no deal could spell “chaos”, economists said.
Thomas Sampson, of the London School of Economics (LSE), said: “Progress will require the UK to make concessions. Possible concessions include making payments to the EU budget, agreeing EU regulations will continue to apply in some industries, and guaranteeing immigration rights for EU citizens offered a job in the UK.
“The UK has a weaker negotiating position than the EU, so even with these concessions it is unlikely to achieve all its objectives.
“But refusing to compromise will guarantee failure.
“Research estimates that leaving the EU without a deal could reduce UK income per capita by up to 10 per cent in the worst-case scenario.”
Economist Philip McCann, of Sheffield University, said: “Countries such as Germany or the Netherlands will be less affected by Brexit than the UK, while many other member states will feel almost no effect.
“This suggests that the economic strength of the UK’s negotiating position is far weaker than most of the UK public understands.”
Swati Dhingra, of the LSE, said: “There is near consensus among economists that the hard – or chaotic – form of Brexit…would hurt the UK economy. Although there was little immediate economic fallout from the Brexit vote, in the first quarter of this year UK economic growth was the slowest of any EU economy.
“The modest recovery in real wages that started in 2014 has been eroded by the higher price inflation from the depreciation of the pound since the Brexit vote. Young workers between 18 and 21 have seen the biggest declines in real weekly earnings, which for them have fallen by 16 per cent since the global financial crisis in 2008.
“All this will put pressure on the government to soften its approach, perhaps seeking an extension of the two-year trigger period or a quick transition deal that maintains single market membership for an extended period.
“This would avoid the ‘cliff edge’ scenario of a no deal, which would mean the UK reverts to World Trade Organisation (WTO) membership without a special deal with the EU on the free movement of goods, services, people and investments.
“Were this to happen, it is estimated it would reduce GDP in the UK by about three per cent per year due to higher trade barriers with the EU.”
Economist Jonathan Portes, of Kings College in London, added: “If negotiations stall, or worse, break down while the Article 50 clock keeps ticking, the risk is there is a rapid erosion in business and consumer confidence as fears of a ‘cliff-edge’ or, still worse, a ‘chaotic’ Brexit grow. This could spiral, with a succession of announcements of business relocations in a variety of sectors. This would also spill over into financial markets, with a further fall in the pound.
“Politically, there would again be feedback loops, this time negative, given the Government’s domestic political weakness. From an economic perspective, the last year may well prove to have been the calm before the storm.”
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