10 1GM Thursday November 26 2020 | the times
News
Sectors of the economy spared the
worst effects of the coronavirus will be
most exposed to damage if Boris John-
son fails to strike a free trade deal with
the EU, the government’s budget
watchdog said yesterday.
The Office for Budget Responsibility
(OBR) said that a no-deal Brexit could
reduce GDP by 2 per cent next year on
top of the economic impact of the virus.
This would result in more than 300,
job losses by this time next year (0.9 per
cent) on top of the nearly million more
people who are expected to be unem-
ployed because of the pandemic.
The warning came as Michel Barnier,
the EU’s chief negotiator, was said to
have told the government that he saw
little point in resuming face-to-face
negotiations in London this week
unless the prime minister was prepared
to make concessions.
The French business newspaper Les
Echos reported that Mr Barnier had
told Lord Frost, the chief British negoti-
ator, that it was hard to see how talks
could progress unless the UK indicated
that it was ready to move on fishing.
British sources did not deny the threat
but suggested that it was “not credible”.
In a sign of the disruption that could
arise at the end of the year, five-mile
queues of lorries formed on the M20 on
Tuesday as French officials tested con-
trols at the Channel Tunnel. It is under-
stood that further tests are planned.
In its report alongside the spending
review, the OBR said that the effects of
new tariffs and barriers to trade as a
result of a no-deal Brexit would dispro-
portionately affect sectors that other-
wise would have come through the
pandemic reasonably unscathed.
In particular it cited manufacturing,
financial services and mining as sectors
that continued to operate while adher-
ing to social-distancing rules. The OBRsaid: “These trade intensive sectors...
are most exposed to the loss of unfet-
tered access to the EU market.”
The OBR said that even with a deal,
GDP would be 4 per cent lower than it
would have been if Britain had re-
mained in the EU. A no-deal exit lead-
ing to trade on World Trade Organisa-
tion (WTO) terms would lead to afurther 2 per cent drop next year, it
suggested.
“In addition to the temporary disrup-
tion to economic activity [of the transi-
tion period ending] a WTO outcome
would also have a longer-term impact
on the productive potential of the UK
economy,” it stated. “The higher tariffs
and non-tariff barriers inhibit tradeNews Spending review
No-deal Brexit could hit harder than virus
Oliver Wright Policy Editor
Bruno Waterfield Brussels
with the EU, resulting in a loss of some
economies of scale and lower trade-
related inward investment.”
The OBR said that the government’s
central strategy of securing free trade
deals with other countries would pro-
vide only “modest” growth. It estimat-
ed that even if a trade deal were struck
with America it would add only 0.02 to
0.15 per cent to GDP in the long run.
The organisation added that failure
to strike a deal would result in an imme-
diate 5 per cent drop in the value of ster-
ling — with a longer term fall of about
3 per cent. This would feed through in
to higher import prices which, along
with new tariff and non-tariff barriers,
would push up the cost of goods in the
shops by about 1.5 per cent.
Rishi Sunak, the chancellor, did not
refer to Brexit in his speech outlining
one-year spending commitments.
Anneliese Dodds, the shadow chan-
cellor, said: “In less than 40 days we’re
due to leave the transition period. Yet
the chancellor didn’t even mention that
in his speech. There’s still no trade deal.
Does the chancellor truly believe that
his government is prepared and that
he’s done enough to help those busi-
nesses that will be heavily affected?”
Ursula von der Leyen, the European
Commission president, told MEPs that
the coming days would prove decisive.
She said: “We will do all in our power
to reach an agreement. We’re ready to
be creative. But we are not ready to put
into question the integrity of the single
market. The European Union is well
prepared for a no-deal scenario but of
course we prefer to have an agreement.”Fishing is proving a hitch to a Brexit deal, with Michel Barnier suggesting that Britain must budge before talks can resumeVICKIE FLORES/EPA