In Brief

What Would a No-Deal Brexit Look Like?

The United Kingdom is set to crash out of the European Union on October 31 without an arrangement for what comes next.

The United Kingdom is preparing for the possibility of leaving the European Union without a plan in place. That would have immediate economic, social, and security repercussions.

What’s happening?

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After two years of negotiations, Prime Minister Theresa May arrived at an agreement with the European Union on the United Kingdom’s exit from the bloc, only to see it voted down by Parliament. May has since been succeeded by Boris Johnson, a strident Brexiteer who pledges to leave without any agreement in place if he can’t convince Brussels to reopen Brexit talks.

No Deal Brexit Supporters
Supporters of Brexit at a “Leave Means Leave” rally in London. Simon Dawson/Reuters

With time ticking down toward October 31, when the UK is scheduled to leave the EU, Johnson has sought to limit the amount of time Parliament will have to debate such an outcome.

Why would a no-deal Brexit matter?

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First off, some economists worry that the British economy would sharply contract. In November 2018, the Bank of England predicted that the effects of a “hard Brexit” would rival those of the 2008 financial crisis. A no-deal Brexit could precipitate an 8 percent drop in gross domestic product (GDP), a 3.4 percent rise in unemployment, and a tripling of the inflation rate. There are several specific pain points:

Trade. Leaving without a deal would mean immediately leaving the common market, which guarantees that all of the UK’s trade with the rest of the EU faces no tariffs or regulatory checks. British exports to the EU would face most-favored-nation-level tariffs, which average just under 6 percent but are much higher on certain goods, especially agricultural products.

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Tariffs chart

There would also be new border checks for both exports and imports. This could result in higher prices, border backlogs and delays, and even shortages of staples, such as food and medicine. As the prospect of no deal has risen, some British companies and citizens have begun stockpiling goods.

Trade

Investment. Several international firms have shifted their investments from the UK to elsewhere in the EU, fearful that supply chains will be disrupted. Capital invested in the other twenty-seven members has grown by 43 percent since 2016, while the UK has seen a 30 percent drop. Aerospace giant Airbus is a prominent example, vowing to direct funds and jobs away from the UK in the event of no deal. Such moves could put tens of thousands of British jobs at risk. London’s role as a world finance leader could also be in jeopardy if financial firms relocate to the continent. Financial services provide 11 percent of the UK’s tax revenue; 44 percent of their exports go to the EU.

Migration. A no-deal Brexit would complicate the status of the 3.2 million EU citizens living legally in the UK, as well as that of the 1.3 million British citizens in other EU countries. Politicians have promised almost all will be granted “settled status” after Brexit, but anxiety remains.

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The Irish border. Without a deal, the border between Northern Ireland and the Republic of Ireland would immediately become an external EU border, requiring customs checks. This has become Brexit’s most contentious issue, as many worry that a hard border could undermine the 1998 Good Friday Agreement and even revive conflict between Catholics and Protestants in Northern Ireland.

Some officials also worry about other potential security ramifications; a former head of British intelligence, Eliza Manningham-Buller, has argued that the UK will be less equipped to handle terrorism and Russian aggression, and UK police have warned that the loss of access to EU crime databases could undermine their efforts. Some proponents of Brexit argue that these fears are overblown.

What’s next?

Johnson has pledged to reopen negotiations with Brussels, specifically on the Irish backstop, a move European leaders have rejected. The EU already agreed once to extend the Brexit deadline, until October 31, but European leaders have opposed doing so again, unless it was to facilitate a second referendum on Brexit.

Yet Brexiteers such as Johnson reject holding a second referendum, saying that disregarding the 2016 vote would spark voter backlash and undermine faith in democracy. For them, no deal is better than a bad deal, and being freed from the EU would allow the UK to negotiate trade agreements with the United States and other countries around the world, becoming a “Singapore-on-Thames.” U.S. legislators have undercut such claims, however, saying they will block any trade deal if the Good Friday Agreement is undermined.

Anti-Brexit forces still hope to pass legislation to block it, but Johnson’s latest gambit is to prorogue—or suspend—Parliament for nearly a month, which critics say is an unacceptable attempt to bypass legislators. That in turn could lead to an even more drastic showdown, including a no-confidence vote in Johnson, and new elections. 

This updates a January 2019 article.

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