What a No-Deal Brexit Could Mean for the Economy
On Wednesday, UK Prime Minister Theresa May said that her cabinet supported the Brexit deal with the European Union. The resignation of important UK government ministers such as Boris Johnson and David Davis, however, highlighted the difficulty of getting a divided parliament to approve the deal. If Parliament does not approve, there are greater chances of a no-deal Brexit, meaning that there would be no agreement on the exit.
Should a no-deal exit occur, there would be no agreement on how products entering the UK from the EU will be treated. The UK has said that tariffs on such goods would default to those set by the World Trade Organization. These levels are used for countries that do not have existing trade deals.
Virtually every industry could face new taxes, affected by levied goods that now pass between the UK and the EU, tariff-free. Imports would become an estimated 4.2 percent more expensive on average. A no-deal exit could lead to higher prices and fewer numbers of daily products.
Everyone, from companies to customers, could be affected in some way. Automobiles and their components could be taxed around 8.8 percent. Oil products and fuels could face a low tariff, although petroleum and natural gas would remain tax-free. Consumer staples such as coffee, pet food, soap and imported water would be more expensive, with tariffs between 3 and 10 percent. Goods like jam, potatoes and orange juice would face particularly high taxes, between 16 and 23 percent.
Worried about higher tariffs as well as potential border disruptions, companies like Mondelez International, Cadbury parent company, have said that they are stocking up on raw materials such as powdered sugar, nuts and cocoa powder. Businesses need to “[prepare] for both a deal and no deal scenario until the deal is ratified,” said Andrew Gray, PwC head of Brexit. The deal only covers exit terms and is not clear on what will happen regarding the trade relationship between the UK and the EU.
Although May has pushed forward with her deal, her biggest challenge will come from the House of Commons; many of the members are set to vote against Brexit. MP Iain Duncan Smith said that May’s days as prime minister are numbered should she keep moving forward. Although May has said that there would not be any more referendums, Owen Smith, an advocate of the anti-Brexit group Best for Britain, has urged for another one, saying that “[this] deal will dictate the course for our country for generations to come, and it must be put to the people for their approval or rejection.”