A new economic forecast commissioned by London mayor Sadiq Khan warns that a no-deal Brexit could leave the UK economy significantly diminished, with a cumulative loss of £140bn by 2030. The study, conducted by Cambridge Econometrics, predicts that crashing out of the European Union without a transition deal or trade agreement would reduce Britain's gross value added—a measure similar to GDP—by 3% compared to current projections.
The report outlines five scenarios, with the most severe being a no-deal exit. Under this scenario, the UK would lose over 500,000 jobs and nearly £50bn in investment by 2030. Trade with the rest of the world would also decline, not just with European neighbours. Even with a transition deal, GDP would be 2.7% lower by 2030.
While the forecast is more circumspect than the Treasury's pre-referendum warnings of a 6% GDP hit, it still relies on several assumptions, including the impact on global trade, changes in the working-age population, and future productivity trends. The study uses a simplified cause-and-effect model for trade barriers, rather than the widely used gravity model, to provide a more realistic assessment of the damage to UK-EU trade.
London is expected to lose up to 87,000 jobs, with its economic output 2% lower by 2030 compared to a soft Brexit scenario. However, the capital is described as one of the most resilient UK economies, with a young and flexible workforce. The north-east and Midlands, which export more goods per capita, are predicted to suffer the most.
The report suggests a potential 'Japan-ification' of the UK economy, where GDP remains static but population decline keeps GDP per head relatively stable. Overall, the study concludes that the more severe the Brexit, the greater the negative impact on the UK.
