An economic analysis carried out by the Rand Corporation shows that a “cliff-edge” Brexit, where Britain fails to strike a trade deal with the EU, will reduce GDP by about 5 per cent, or $140 billion (£105 billion), over 10 years.
Rand Corporation said this scenario would see the UK leaving the EU with no deal and subscribing to World Trade Organisation (WTO) rules.
Under those rules, the EU would also lose out economically “but nowhere near the same proportion as the UK – about 0.7 per cent of its overall GDP, which is $97bn”, the report adds. “The economic analysis shows that the UK will be economically worse off outside of the EU under most plausible scenarios.
“The key question for the UK is how much worse off it will be post-Brexit,” the report said.
Besides falling back on World Trade Organisation rules, the Rand Corporation tested seven other trade scenarios which, it said, would be “considerably better” for the UK.
This included so-called Swiss and Norwegian-style models, but it warned “most would still lead to economic losses compared with its current status as an EU member”. Rand said: “Of all the scenarios analysed, the one that would have the most benefit would be a trilateral UK-EU-US agreement....however, this is seen as very unlikely in the current political environment.”
Since the Brexit vote, Britain’s economic growth has slowed considerably, as inflation has risen and the pound’s value has slumped, and the country’s GDP growth has been overtaken by the euro zone.
At the recent UK government Budget, the independent Office for Budget Responsibility (OBR) forecast average GDP growth of just 1.4 per cent between 2017 and 2021. That compares with long-term trend UK growth of 2.5 per cent.
Analysts said yesterday’s study by Rand implied that Theresa May’s government was in the main undertaking a damage limitation exercise as it negotiates a withdrawal from the European single market that Britain first entered in 1973.
Rand said the US would also “miss the influence and global perspective that the UK brings to the EU decision-making process, particularly around foreign policy, security and defence”.