The consequences of the UK failing to reach a deal with the EU will be “widespread, damaging and pervasive”, according to a new report featuring LSE experts.
‘Cost of no deal’ by The UK in a Changing Europe examines the consequences of the UK failing to strike either an Article 50 or a trade deal with the EU – what is termed a ‘chaotic Brexit’.
The report finds that a chaotic Brexit might come about in two ways: apremature Brexit; where talks break down acrimoniously with the UK unilaterally ceasing to pay its EU contributions; or a timed out Brexit, where the talks do not completely break down, but no agreement is reached within the two year period and there is no extension.
In the event of a chaotic Brexit, the UK’s nuclear plants may not be able to operate; British airlines might be unable to fly; and both UK citizens in the EU and EU citizens here would find themselves in legal limbo.
Additionally, potential uncertainty when it comes to monitoring and implementing rules, notably in the area of the environment, could result in weaker protections. Legal chaos over the enforcement of contracts is one area of uncertainty which will prove costly and time consuming for British businesses exporting to the EU.
Complex cross-border supply chains would be disrupted, not least because requisite customs checks, tariffs and regulatory barriers will not be in place. And drugs developed in the UK may not have their approval recognised in other member states and clinical trials would be disrupted.
The likely economic impact of no deal includes a further significant fall in the exchange rate, a consequent rise in inflation, a fall in wages and consumer demand and a fall in business confidence, leading to a slowdown in investment.
‘Cost of no deal’ was produced by The UK in a Changing Europe and features contributions from LSE academics Dr Swati Dhingra and Dr Thomas Sampson.