A new report from global consultancy firm Oliver Wyman says that a worst-case scenario Brexit outcome, with the highest tariffs and other regulatory trade hurdles, could cost the British economy £27 billion. Such an outcome would affect supply chains for supermarkets and restaurants, with higher costs passed on to consumers, according to the analysis, with households short as much as £1,000 annually.
BBC News described the report, which is set to be published next week.
Even under a more amicable break with the EU, with a minimum of regulatory barriers and no tariffs, the report suggested that added “red tape” costs could increase household expenses by 1 percent annually, or £250 per household. This would mean a total cost to the economy of £6.8 billion.
Brexit supporters have argued that such forecasts are “too pessimistic” and “alarmist,” saying that a chance to focus on the domestic economy will actually benefit the UK. Gerard Lyons, an economist who supports a break with the EU, that any short-term impact would be outweighed by long-term benefits.
“We need pro-growth policies, and should remember that 90% of global growth in the future will come from outside the euro-area,” he said.
And the government has said it will work towards as cooperative a trade relationship with the EU as possible.
However, the Oliver Wyman report suggests substantial costs in any scenario. The firm has worked to predict the economic impact of Brexit for the financial service and retail sectors, as well as the government. According to the firm’s Duncan Brewer:
“While the outcomes of Brexit remain unclear, our analysis shows that any scenario will increase costs for UK households… the only question is by how much, which will depend on what deal is negotiated.”
“A Brexit deal that results in no new tariffs with the EU is still likely to increase the red tape costs of imports, driving down profits for businesses, and driving up prices for consumers….looking across the whole supply chain and taking into account multiple different Brexit outcomes, one thing is clear: Brexit will decrease profits for consumer businesses.”
The analysis examined the effects of Brexit on a range of economic sectors. They found that even in the most favorable scenario, a supermarket chain making £10 billion annually would see their profits fall by a third. For profits to remain as high as before Brexit, a 2.3 percent price increase for consumers would be necessary.
“While businesses will do all they can to absorb rising costs, we expect they will be forced to gradually put up prices for shoppers. If they don’t, profits could vanish,” Brewer continued.
Other reports, by the Bank of England, government officials, and others, have supported the idea of a negative economic impact from Brexit.