The UK could see up to £66bn-worth of export losses in 2019 if no transition deal with the European Union is agreed, according to the latest economic report from trade credit insurer Euler Hermes.
Export losses for goods in 2019, after the UK exits the EU, could be as high as £30bn, while export losses for services could be even higher at £36bn. In real terms, this would mean a 6% drop of total exports on the previous year. Meanwhile, the insurer predicts that the level of inward investment in UK companies could fall by 8%.
“A transition deal once the UK formally exits the EU in March 2019 could help limit the negative impact on the economy,” says senior economist for Europe at Euler Hermes, Katharina Utermöhl.
“With such an agreement in place, the UK would see growth of 0.9% in 2019; compared with a 1.2% contraction should the UK leave the EU and trade on World Trade Organisation (WTO) terms.”
The report Brexit: Taking the pulse of the UK economy, also forecasts the UK economy to become the worst performer in the EU next year, as the Brexit-induced slowdown becomes increasingly more pronounced. UK GDP growth is forecast to reach just 1% in 2018, following an expansion of around 1.5% this year, putting it behind its European neighbours.
Following strong growth of 2.1% in 2017, the eurozone will continue to grow above potential with GDP set to expand by 1.8% in 2018 as trade and investment levels continue to rise.
Germany, France and Spain are forecast to see growth of 2%, 1.7% and 2.3% respectively, according to the findings. The Netherlands will see an expansion of 1.7%, with Belgium’s economy predicted to grow by 1.4%.
Euler Hermes says a softening in investment levels and slowing consumer spending are behind the UK’s slowdown. The report forecasts corporate investment could contract by 2.3% in 2018.
“The continuing uncertainty surrounding the UK’s position on Brexit has put the economy on the back foot compared to its European counterparts, as higher prices due to the declining value of sterling and weakening confidence hit retail spending and appetite for investment,” says Utermöhl.
UK government criticised for “lack of progress”
The UK government has been under increased scrutiny due to the lack of progress it has made so far in Brexit negotiations and in outlining its plans for the UK’s future trade relationships.
In March, the UK’s International Trade Committee published a report in which it set out central challenges facing the government, and sought clarity and reassurance on various aspects of establishing new trading agreements, as well as the UK’s position with regards to the WTO.
Last week the committee published the government’s response to its report, describing it as “particularly disappointing”.
“It is eight months since we published this report and 16 months until Brexit happens. Time is running out, yet the government appears to be moving at glacial speed,” says committee chair Angus MacNeil.
“Commenting on both WTO schedules and grandfathering [the exemption or reprocessing of deals under existing agreements] the government tells us only that it has begun discussions. There is no evidence that there are workable plans to deal with the problems and pitfalls to which we drew attention back in March. The lack of progress demonstrated by the government’s response, and the lack of detail provided, is particularly disappointing given how long we have waited for it.”
Earlier this month, the UK government published a trade bill that details its post-Brexit trade policy. The bill, which the government says aims to avoid overnight changes to trade for businesses and a cliff edge for exporters, was also criticised for lacking in detail and clarity.