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A No-Deal Brexit will Add to Covid Woes in the UK

The Organisation for Economic Co-operation and Development (OECD) has warned that Brexit with no trade agreement in place will add to the economic woes that the UK has suffered this year, as the country attempts to recover from the coronavirus pandemic.

What Did They Say?

The Paris-based think tank pointed out that the lack of a deal would make the British economy shrink by 6.5%. They pointed out that the chaos caused by the pandemic will make a disorderly Brexit even more awkward, as businesses aren’t as prepared for the period of transition as they should be.

Among the areas to be hardest hit in this scenario is manufacturing. The OECD expects that the car manufacturing industry, food and textile producers will be the most deeply affected firms, with drops in export levels reaching up to 30%. These are among the sectors where many businesses are already looking at collection agency options.

Álvaro Pereira is director of the country studies sector of OECD. He said that Brexit “obviously compounds” the huge economic and social shock that Covid has caused all over the planet. He went on to state that the crucial thing now is to “focus on a deal” that allows the closest possible relationship, as both sides would lose out if there is no deal in place soon.

They track 37 economies and say that the UK is one of the hardest-hit of all of them in 2020. The fact that Brexit comes into force at the start of 2021 means that these two major issues are coming together at the same time.

More Details

This was the OECD’s first major study of the British economy since 2007. They revealed that the lockdown and ongoing restrictions have put the UK’s GDP on track for a 10% drop in 2020, with a 7.6% recovery expected for 2021.

A further prediction is that the number of unemployed will rise to 5.3% this year, and will carry on climbing up to 7.1% in 2021. These numbers are lower than the predictions by the Office for Budget Responsibility, and the OECD praised the government´s attempts to protect jobs with the furlough scheme.

They also calculated the impact on the economy if a deal is reached before Brexit takes place. In this case, the impact would be a 3.5% decline over the next few years, compared with staying in the EU single market. Unemployment would also be about 1% higher than would otherwise have been the case.

Future Investments Needed

The next point refers to the need for the UK to invest a lot of money in digital infrastructure to help repair the damage caused to the economy by the lockdown. The OECD said that they will also need to push through reforms to make this investment work.

Among the areas mentioned were green technology and high-speed broadband. This need for investment is further complicated by the fact that by the time the crisis is over, the UK is likely to have levels of debts never previously seen outside of war-times.