This report examines the potential economic implications of prolonged trade policy uncertainty associated with the renegotiation period between the UK and EU after Brexit. It is estimated that by the end of the initially planned transition period in 2020, UK GDP could be 0.17 percentage points lower compared to if the UK was not in a renegotiation period about its future trading relation with the EU. Equivalent to a GDP loss of about $5.5bn.

The End of the Beginning

Assessing the potential economic implications of prolonged UK–EU trade policy uncertainty

Charles P. Ries, Marco Hafner, Clement Fays, Erez Yerushalmi

ResearchPublished Jan 28, 2020

This report examines the potential economic implications of prolonged trade policy uncertainty associated with the renegotiation period between the UK and EU after Brexit. Specifically, the report focuses on the effects on UK trade and foreign direct investment.

Key Takeaways

  • Brexit uncertainty likely had negative economic consequences for the UK since the EU referendum in 2016.
  • It is estimated that by the end of the initially planned transition period in 2020, UK GDP could be 0.17 percentage points lower compared to the baseline where the UK is not in a renegotiation period about its future trading relation with the EU. This is the equivalent of a GDP loss of about $5.5bn.
  • If the renegotiation period lasts longer, by 2025 the estimated effect is a 0.39 percentage point lower UK GDP compared to the baseline (about $14bn).

Recommendations

  • The implications of this analysis are that even though the negotiated withdrawal agreement and accompanying transition period are due to be approved imminently, the UK will need to define and resolve its long-term relationship with the EU (and other partners) in the upcoming phase of the Brexit negotiations, weighing up the potential short-term cost of prolonged trade policy uncertainty against the potential long-term economic implications associated with the comprehensiveness of any future agreement.
  • Britain's allies, especially the United States, will also be concerned by any prolonged period of uncertainty about the UK's security and defence relationships with its neighbours.

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Document Details

Citation

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Ries, Charles P., Marco Hafner, Clement Fays, and Erez Yerushalmi, The End of the Beginning: Assessing the potential economic implications of prolonged UK–EU trade policy uncertainty. Santa Monica, CA: RAND Corporation, 2020. https://www.rand.org/pubs/research_reports/RR4265.html.
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