How will Brexit impact the UK’s coronavirus-ravaged economy?
The UK economy took an anticipated hit during Q4 of 2020 following the second national lockdown in November. The Quarterly Economic Survey conducted by the British Chamber of Commerce found that 79% of hotels and catering firms reported a decrease in domestic sales during Q4 and cash flow deteriorating for 43% firms overall.
After economic output decreased by 2.2% in Q1, the UK economy experienced its largest contraction in Q2 by a further 20.4%. The deterioration made two successive quarters of decline, a standard economic condition amid a recession.
Whilst economic output returned to growth in June as lockdown measures eased and consumer spending increased, the UK economy remained vulnerable. The Office for Budget Responsibility (OBR), forecast that a UK “typical” free trade agreement with Brussels, could cause the UK economy to lose 5.2% of GDP in the 15 years post-Brexit. The OBR also noted that high trade tariffs could cause imports and exports to be approximately 15% lower after ten years.
With the UK managing to secure a Brexit trade deal with the EU in December, it seems that further potentially disastrous economic impacts have been averted. A study conducted by the United Nations forecast that UK imports and exports had the potential to decline by 14% post-Brexit and a loss of around GBP 28.9BN in the event of a no-deal.
Although the Brexit transition period only recently concluded, New Zealand Deputy Prime Minister Winston Peters argued that Brexit could strengthen the UK’s trading relationship with other countries to rival the European Union.
BREXIT OPPORTUNITY FOR THE UK TO EXPAND TRADING TIES WITH OTHER COUNTRIES
According to NZ Deputy Prime Minister Winston Peters, Brexit is an ideal opportunity for the UK to expand its trading ties with its Commonwealth partners.
Mr Peters said New Zealand is particularly excited by the prospect of a new trade agreement with the UK, hinting towards the possibility of cementing a “Commonwealth connection” that encourages more effective trading between the two nations.
He stated: “I know we’re going to encounter several problems with the UK’s agricultural sector but, these are the same problems Britain is currently experiencing with the French farming community.”
Winston Peters also mentioned the growth trends the UK and other Commonwealth countries were experiencing pre-pandemic and how this presents significant opportunities for Commonwealth partners post-COVID.
However, the politician is frustrated with the pace of UK-NZ trade talks as the UK was not able to enforce any trade agreements with New Zealand before the December 31st Brexit deadline.
President Trump vows to remove trade tariffs on the UK
A possible UK-US trade deal was looking unlikely ahead of the November presidential elections. However, according to news reports, talks between Downing Street and the White House will now be delayed until Spring 2021.
While the delay is a significant setback, both sides have reaffirmed their commitment to striking a trade deal, with US President Donald Trump vowing to remove several trade tariffs on UK goods.
US Trade Representative Robert Lighthizer said that instead of imposing tariffs on the UK, the United States would raise taxes on USD 7.5BN (GBP 5.7BN) worth of European products, France and Germany likely to take the brunt of the burden.
The EU-US trade war can be traced back 16-years to a dispute over aviation. The latest move by the US merely reaffirms the fact that both sides are still unable to reach an agreement.
Mr Lighthizer said the US is responding to the EU’s failure to act on necessary obligations, as he accused the 19-member bloc of not complying with WTO rules.
While the UK stands to benefit from US-EU trade tensions in a post-Brexit trade agreement with the United States, Downing Street is also trying to negotiate trade deals with Australia and New Zealand in the coming months.
UK SIGNS TRADE DEAL WITH JAPAN
On 23rd October 2020, International Trade Secretary Liz Truss signed a trade agreement with Japan, the first deal to be reached with an independent trading nation. Both sides reached a broad agreement on auto tariffs and made impressive headway on critical sectors such as financial services, food and drink and creative industries.
It’s hoped that the UK’s trade deal with Japan will help to rebuild the economy following the significant impact of COVID-19. Liz Truss stated that the deal with Japan shows what the UK can do as an independent trading nation, securing modern and bespoke provisions in areas such as tech and services that are critical to the future of the country and reshaping the UK economy.