What could a No Deal Brexit Mean?

January 4, 2021

Despite much of 2020’s news reel being taken up with COVID19 and the government response to it, there has still been the issue of Brexit for Boris Johnson and his cabinet to contend with. On the 31st December, 2020, the transition period will have ended and a new trade agreement between Britain and the EU needs to be agreed upon. Without one, Britain will leave the EU with no deal in place. But what exactly does a No Deal Brexit mean? 

Here, we look to answer that question as well as touch on what the economic of a No Deal Brexit are.  

What happens if there is a No Deal Brexit? 

If the two sides cannot settle upon an agreement that both are happy to sign, Britain will leave the EU without a specialised deal in place. As a result, the EU and the UK will enter into a new trading relationship that is ruled by the World Trade Organisation guidelines. Both sides clearly do not want this to happen as evidenced by the ever extended talks to try to come to a compromise where both sides are happy with how Brexit will look. However, as the 31st December draws closer and closer, it looks more and more inevitable that that is how Britain will finally leave the EU - years after its referendum. 

What are the WTO Rules?

The WTO rules are enforced between two nations without a trade agreement in place. The rules state that should there be tariffs on any transactions or transfers, those tariffs need to be the same amount as the lowest tariff charged on the goods or services in question to other WTO members. Transactions are also subject to other restrictions set out in what is known as the most favored nation rule. In practice, this means that if the EU and the UK were to walk away from negotiations with No Deal, they would not be allowed to grant preferential prices, tariffs or quotas to each other - as under the MFN ruling, they would have to do so for all other WTO members at the same time. 

The Economics of a No Deal Brexit

The economic implications of a No Deal Brexit and a world where the UK and the EU have to trade with each other under WTO rules are vast and far reaching. Economists have differing views on how bad a No Deal Brexit would be for both parties, but they do at least agree that it would be a bad result economically - even if they cannot agree by how much. This is because the use of WTO rules would mean that tariffs for both sides increase along with costly trade restrictions. The result will be higher prices for many goods and services as well as the need for compliance with a complex amount of regulation - increasing costs ever more.

Rachel Lee
Having worked at Morgan Stanley and BNYMellon for over 10 years in pensions and investments, Rachel now works as a full-time business and financial writer.

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