UK will have to renegotiate 56 trade deals, says economist
ESRI conference told of mammoth challenge facing Britain after it withdraws
Simon Kirby: he warned the depreciation of sterling would eventually translate into an erosion of consumer purchasing power
Britain will have to renegotiate at least 56 trade deals after it withdraws from the EU regardless of what deal it secures with Brussels, a senior UK economist has warned.
Simon Kirby of the UK’s National Institute of Economic and Social Research (NIESR) said the biggest challenge facing post-Brexit Britain was replicating the trade deals that currently exist via the EU. He was speaking at the Economic and Social Research Institute’s (ESRI) annual policy and perspectives conference in Dublin.
“This is an enormous task taking into account the recent EU trade deal with Canada, that is about to be ratified, took approximately seven years. We’re going to have to do about 56 of these after we’ve negotiated our new relationship with the EU, which might take longer that the two-year withdrawal window.”
The British government has yet to signal what type of post-Brexit deal it wants.
If it was to negotiate some arrangement akin to the Swiss model but with financial services, Mr Kirby said NIESR is predicting a 2-2.5 per cent negative hit to UK gross domestic product (GDP) over the longer run.
Switzerland is currently not a member of the EU or the European Economic Area, to which Norway belongs. Instead it has brokered bilateral treaties with the EU and is also a member of the European Free Trade Association which secures free trade in all non-agricultural goods but not services.
In the case of a “hard Brexit” with Britain reverting to World Trade Organisation rules, Mr Kirby said his think tank is predicting a 4-5 per cent reduction in UK GDP.
The UK economy has defied predictions with headline GDP expected to expand by just under 2 per cent this year, while consumer spending, unemployment and the housing market remain in positive territory.
“There has been some positive surprises, but it’s effectively down to the resilience of the UK consumer and that will probably continue until the end of this year,” Mr Kirby said.
“What we have actually observed is the depreciation of sterling, which in trade-weighted terms is about 20 per cent below where it was at the end of 2015.” He warned this would eventually translate into an erosion of consumer purchasing power, which would be the key impact of Brexit over the short term.
“The results of our analysis suggest that in the future the traditional deposit base will be unable to fund the level of credit required to meet the housing demands of the economy,” the think tank said.
In such as scenario it suggests foreign banks may need to re-enter the market to fill the gap.