Study finds Brexit is set to cause ‘double shock’ for UK economy

Chancellor Rishi Sunak speaks CEO of Worcester Bosch, Carl Arntzen (right) during his visit to Worcester Bosch factory. Photograph: Phil Noble/PA. - Credit: PA

The UK’s economy could be in for a ‘double shock’ as companies who survived the coronavirus pandemic could face going under as a result of Britain leaving the EU single market at the end of this year.

A study by the London School of Economics warned that UK industries across the board face huge financial pressures as a result of Brexit, regardless of whether Boris Johnson secures a trade deal with the EU or not.

Analysis of monthly surveys from members of the Confederation of British Industry (CBI), a not-for-profit body that represents UK businesses, shows that companies remain deeply concerned over the ‘simultaneous’ impacts of Brexit and the coronavirus pandemic on trade.

Executives across the business spectrum are particularly worried about the state of the UK economy from autumn when the Treasury’s furlough scheme ends and the new trading environment for the UK outside the EU begins to bite.

The report, Covid-19 and Brexit: Real-Time Updates on Business Performance in the United Kingdom due out on Wednesday by the LSE’s Centre for Economic Performance said industries that were able to operate with staff working from home during the pandemic will be one of the hardest hit by changes brought about by Brexit.

It said sectors such as professional services, including accountancy and legal services, publishing, and chemicals, will be stung with having to fill out customs declarations to trade with the EU.

The report also criticises Downing Street for falling short on its promise to guide Brexit according impact assessments across all UK industries after it emerged only 10 sectors have been covered to date.

‘The government must move beyond its broad assessment of Brexit impacts to much more finely tuned plans’ in preparation for the ‘biggest slowdown of our lifetime’ said Josh de Lyon, a research assistant at the LSE centre who co-authored the report.

Swati Dhingra, an economics professor who also contributed to the study, said that Covid-19 had ‘reduced the capacity of the UK economy to take further shocks’, and ‘rushing Brexit through’ would ‘broaden the set of sectors’ that experienced worsening business conditions.

The LSE report urges the government to devise a industrial strategy that ‘reflects’ the reality of ‘being in a post-Brexit UK which is placed in a post-Covid world economy’ in which global trade shrinks.

Naomi Smith, chief executive for pro-EU group Best for Britain, said the clock is ticking to heed the warnings.

‘The LSE’s work chimes with the findings of Best for Britain’s recent report into the double-whammy winter looming for UK businesses, particularly in areas such as the Midlands and North West England, where the major business sectors are particularly exposed.

‘We echo the LSE’s concerns that a thin or no-deal Brexit will result in wider economic damage.

‘The needless piling of pain upon pain for struggling businesses will cost jobs and hurt the economy, at a time when our country’s finances desperately need to be shored up.

‘The government must heed these warnings, and grab the opportunity to draw up much more detailed plans for businesses, sector-by-sector, before time runs out.’