The European Commission has forecasted that the economic blow dealt by Brexit will be four times greater in the United Kingdom (UK) than the European Union (EU).
In its winter economic forecast, the EU’s politically independent executive arm said the UK’s exit on the terms agreed by Boris Johnson’s government would generate a loss in gross domestic product (GDP) by the end of 2022 of about 2.25% in the UK compared with continued membership. In contrast, the hit for the EU is estimated to be about 0.5% over the same period.
The commission also said that although worse damage had been avoided because of the 11th-hour trade deal signed in December, substantial barriers to trade still remained and would come with a heavier cost for Britain.
“While the FTA [free trade agreement] improves the situation as compared to an outcome with no trade agreement between the EU and the UK, it cannot come close to matching the benefits of the trading relations provided by EU membership.”EU Commission winter economic forecast
Several economists have already predicted that Brexit will come at a bigger cost to the UK economy than to the EU. However, the figures compiled by the commission marks the first official EU estimates made since the deal was agreed.
The Brexit deal included maintaining zero-tariffs on the sale of goods across borders between the UK and the EU. However, businesses have faced additional costs and delays from new paperwork, customs checks and confusion over the new system.
The commission in its winter forecast said the “trade shock” from these non-tariff barriers amounted to the equivalent of a tax on imports worth 10.9% for the EU and 8.5% for the UK. It added that there was a bigger impact on growth for countries with a higher share of goods traded with the EU such as Ireland and that the lack of a deal on services, which form 80% of the UK economy would hurt the UK, as well as EU nations where doing service-sector business with Britain was more important.
However, it said the last-minute trade deal helped to reduce the negative effect by about a third for the EU and a quarter for the UK compared with a no-deal scenario and reverting to World Trade Organization terms.
The winter 2021 economic forecast projects that the EU economy will grow by 3.7% in 2021 and 3.9% in 2022 as “the impact of tougher lockdown measures at the start of 2021 give way to a vaccine-fuelled recovery” later in the year. It said the EU economy should return to pre-pandemic levels in 2022, earlier than previously thought, but added that it would take longer for some nations than others.
The Bank of England (BOE) has forecasted growth of 5% in the UK in 2021 and 7.25% in 2022, with GDP returning to pre-Covid levels towards the end of the year. The BOE said this would be faster than the EU as a result of better progress in administering the Covid vaccine.