Long-term impact of no-deal Brexit 'worse than Covid-19'

Cornelia Mascio
Novembre 25, 2020

Bailey said failure to agree to a deal before the Brexit transition expires at the end of December would cause disruption to cross-border trade and damage the goodwill between London and Brussels needed to build a future economic partnership.

The central bank governor acknowledged that the fallout from the pandemic and the second national lockdown in England was having a greater short-term impact on the economy.

With time running out for the United Kingdom and the European Union to agree a trade deal for after Britain's complete exit from the EU, Bailey told a Parliamentary committee that, in his opinion, there was "no question" the possibility of Britain leaving without some sort of deal in place would be more damaging. However, "the long-term effects, I think, would be larger than the long-term effects of Covid".

London and Brussels remain locked in negotiations ahead of the Dec 31 expiry of Britain's Brexit transition period.

Chancellor Rishi Sunak stated that the United Kingdom should not settle on an agreement with the European Union at any cost, effectively insisting that the COVID-19 pandemic posed a greater risk to the national economy than a no-deal Brexit.

But he argued that in the longer term, the economic cost of leaving without a deal would be larger than the cost of Covid. Sunak said a deal was preferable but that the United Kingdom would "prosper in any eventuality". "The reason for that is that it takes a lot longer period of time for the real economy to adjust", he added.

Britain's economy shrank by a quarter when the COVID-19 pandemic hit the country in early 2020 and prompted the government to shut down swathes of businesses.

With the economy under continued pressure amid the second Covid wave, despite a rapid recovery this summer, Threadneedle Street estimates that the pandemic will cause persistent scarring over the long term, with total economic output about 1.75% lower than would otherwise have been the case by the end of 2023.

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