‘Fairly hard’ Brexit
LONDON - Britain will be on course for more distant economic ties with the European Union, making the country poorer, if Prime Minister Boris Johnson wins parliamentary backing for the Brexit deal he clinched with Brussels on Thursday.
Compared with the deal his predecessor Theresa May reached last year — which Parliament rejected three times — Mr Johnson’s deal aims for less regulatory alignment with the EU, and greater trade barriers between Britain and its largest trading partner.
Mr Johnson now faces a fight to convince Parliament, where his Conservative Party lacks a majority, to approve the deal in a vote due to take place on Saturday.
“Even if Boris Johnson does manage to close the deal, investor celebration of this might soon be dampened by the recognition that this is a fairly hard Brexit,” said Paul O’Connor, a fund manager at Janus Henderson.
Britain’s finance ministry and almost all external economists have forecast that increased trade barriers will cause the British economy to grow more slowly than if it were to stay in the EU, and the damage increases as trade barriers rise.
Based on what was known of Mr Johnson’s plans last week, UK in a Changing Europe estimated that they would make Britons more than 6 per cent poorer on a per capita basis than staying in the EU — equivalent to 2000 pounds ($5652) per year in the medium term.
Ms May’s deal would have reduced income by just under 5 per cent per head, while a so-called no-deal Brexit — which would leave Britain trading purely on World Trade Organization terms — would lower incomes by just over 8 per cent.
“This is more damaging than Theresa May’s Brexit in terms of economic impact,” said Anand Menon, UK in a Changing Europe’s director.
Mr Menon said he did not think these estimates needed to be changed significantly, based on the final deal reached on Thursday. He expected Mr Johnson to push back against the “level playing field” requirements on regulatory alignment that the EU wants to be a condition for a close future trading relationship.
By contrast, the opposition Labour Party has said it would seek a closer trading relationship with more alignment with EU rules on the environment and worker protections if it was in charge of talks after Britain left the EU.
If Britain leaves the EU on October 31, as scheduled, Mr Johnson’s agreement ensures a transition period lasting until at least the end of 2020 during which there will be no big economic change.
This period can be extended until the end of 2022, while Britain and the EU negotiate a new trade arrangement with fewer shared rules and new restrictions on cross-border trade in goods and services.