Assessing the economic implications of coronavirus and Brexit

Report by: Social Market Foundation

Author(s): Kathryn Petrie; Amy Norman

May 31, 2020

This latest report from UK think tank SMF looks at the economic impact of Covid-19 and our future relationship with the EU.

This report offers clear evidence-driven analysis of the economic impact of the two most pressing issues facing the UK economy today: the coronavirus crisis and our future relationship with the European Union when the transition period ends. It is currently unclear whether the UK will leave the transition period at the end of 2020 with a Free Trade Agreement (FTA) or without a deal. This analysis indicates that regardless of the trade scenario agreed between Britain and the EU, the direction in both the short and long run is clear: The Government’s proposed deal (FTA): medium-size negative impact on GDP. Leaving without a deal in place (WTO): large negative impact on GDP. Coronavirus has complicated the picture further, with certain sectors and regions more severely impacted than others. Construction and banking, finance and insurance are expected to experience the most severe negative impacts from coronavirus. London and the East of England will face the greatest proportional underperformance, as they rely most heavily on the most-exposed sectors. Regardless of whether Britain experiences a ‘U’, ‘V’ or ‘W’ shaped recovery after lockdown ending the transition period is likely to suppress growth. Leaving the European Union with or without a deal whilst recovering from the economic consequences of coronavirus will result in a double impact for particular sectors and localities. If the UK fails to negotiate a deal with the EU, the North West, West Midlands and East of England are likely to face a disproportionate double impact from coronavirus and Brexit. 70 NUTS3 areas rank in the top quintile of impact under a WTO-coronavirus scenario. 76% of areas in London fall in this category and 50% of the North West. One sixth of the areas in the top quintile of job impact under a WTO-coronavirus scenario have more than a third of their labour market working in either manufacturing or finance, banking and insurance etc.