Leaving the European Union without a trade deal won’t be cheap.
According to analysis by Rabobank, a so-called hard Brexit would cost about 18 percent of GDP growth by 2030. That’s about 400 billion pounds ($530 billion) in absolute terms, or 11,500 pounds per person.
For the researchers, a hard Brexit is leaving the EU without a trade deal in place. Ministers this week detailed some contingency plans for that scenario, suggesting they’re considering it as a distinct possibility.
Barriers to trade, lower investment, a loss of financial services and lower immigration would all weigh on growth, according to the report, written by economists including Hugo Erken and Raphie Hayat. “We deviate strongly from previous studies in our approach and assumptions and find much higher costs,” they said.
In a particularly pessimistic assessment, Rabobank said that even if the U.K. manages to strike a deal with the bloc, it will still enter a two-year recession once it leaves in 2019. It sees a GDP decline of 1.1 percent in that period if there’s a free-trade deal with the remaining 27 EU countries, and more than twice that — 2.4 percent — without it.
Chancellor of the Exchequer Philip Hammond said Wednesday that he will start releasing more money to help prepare for a “no deal” Brexit if there aren’t clear signs of progress in exit talks by early next year. The government also set out plans for leaving without a deal on customs earlier this week.
The U.K. has until March 2019 to secure a new trading relationship with the bloc, and Prime Minister Theresa May has pledged a two-year transitional period to shift to it. But negotiations with the EU are currently stuck, increasing the chances of the worst-case scenario in which no deal is reached.
Rabobank’s projection is reminiscent of some of the dire warnings made by economists before the referendum, which have thus far proved to be overly pessimistic. The government’s options for mitigating any economic hit — like reducing corporate taxes, saving on budget contributions or making fresh trade agreements with non-EU countries — have limited scope for offsetting the negative impact, the economists said.
Tax reductions would have to be balanced out by increases elsewhere and the U.K. will probably have to pay some amount to the EU budget to maintain access to the market, as well as paying a divorce settlement, they said.
U.K. Trade Policy Observatory economist Michael Gasiorek said Wednesday that it’s unlikely that the two sides will agree on the terms of a transitional period before the deadline. They should seriously consider requesting an extension of the talks beyond March 2019, “controversial as that would be on all sides,” he said in a blog post.