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UK faces £17 billion hit in lost manufacturing trade with hard Brexit

A new report warns manufacturing exports to non-EU countries would need to increase by 60% to counter loss of trade with EU.


A hard Brexit would lead to a loss of almost £17 billion pounds from reduced trade with the EU, according to a new report. The study by law firm Baker Mackenzie and economic consultancy Oxford Economics looked at the impact of a hard Brexit with the UK outside of both the single market and customs union. Under this scenario, the UK would have to rely on WTO ‘Most Favoured Nation’ rules for trade with the EU.

Focussing on four key UK sectors (automotive, technology, healthcare and consumer), it found increased costs from both tariff and non-tariff barriers for exporting to the EU at the same level as in 2016 would cost a total of £3.8bn. As a result of these added costs, the report expects a decline in EU export revenues of £7.9bn in the automotive industry, £5.2bn in the consumer industry, £2bn in the healthcare industry and £1.7bn in the technology industry.

A separate report by the Centre for Economics and Business Research estimated the cost of leaving the single market on the UK’s services trade at between £25bn and £36bn a year. According to a parliamentary research briefing, the UK’s contribution to the EU was £8.1bn in 2016/2017 was £8.1bn. Bearing this in mind, EU membership seems a bargain compared to what the UK could lose from being outside the single market and customs union.

Cost of hard Brexit on UK’s key manufacturing industries

Here are a couple of graphs from the report. The one showing the cost of tariff and non-tariff barriers is particularly good at demonstrating the equal importance of both in trade. You can see the full report at bakermackenzie.com.

The report said these four sectors account for 42% of UK manufacturing GDP with 45% of manufactured exports going to the EU. And a recent report by the Office for National Statistics showed that whilst the trade in goods deficit with the EU has narrowed, the trade in goods deficit with non-EU countries has actually widened. It’s clear that EU trade is significant for these industries. Indeed, the report suggests manufacturing exports to non-EU countries would have to increase by a massive 60% to offset the loss from a decline in EU trade.

Fall in pound doing more harm than good as UK trade deficit widens

The UK government has yet to firm up its position over what it is seeking in a future relationship deal with the EU. As Tom McTague reports in Politico, cabinet ministers are split over how closely aligned the UK should be to EU rules and regulations beyond a transition period. Whilst the foreign secretary Boris Johnson is advocating for the freedom to move away from EU rules, the chancellor Philip Hammond is pushing for more convergence with the EU. Treasury officials fear that prioritising control over regulatory convergence with the EU would hit the UK hard with no certainty of reaching new trade deals with non-EU countries.

The Baker Mackenzie and Oxford Economics report also found there was a sizeable share of EU-owned and non-EU overseas owned companies in the UK that were “likely motivated to base their operations in the UK because of the single market access it offered”. And should the UK no longer have this access, the report warned businesses could decide to relocate away from the UK.

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