Economic cost of hard Brexit now on cards

The defeat of Theresa May’s Brexit deal only adds to the uncertainty surrounding what will happen next and what the effect will be for Australia, says UNSW Business School’s Tim Harcourt.

“Brussels pushed the UK too far,” says UNSW Business School’s Tim Harcourt. “The EU wanted to punish the British people for stepping out of line, but the shemozzle today now runs the risk of hard Brexit with adverse consequences for Europe, and indeed the world economy.”

MPs voted to reject Theresa May’s Brexit deal by 230 votes. The vote opens a range of outcomes, including no deal, a renegotiation of Mrs May’s deal, or a second referendum.

“The scale of the defeat took even her by surprise. Domestic UK political events may seem half a world away – literally, for Australia – but leaving the European Union without a divorce deal could plunge Britain into its deepest recession in nearly a century,” he says. “That should make everyone around the world pay attention.”

He suggests that with less than three months to go before the UK is due to leave the EU another milestone has come and gone. He warns that if the UK enters a hard Brexit by accident, official forecasts indicate the UK economy could shrink 8%, while unemployment and inflation will soar. “The pound has already slumped 7% in 2018 reflecting uncertainty about the terms of the UK’s exit from the European Union.”

He feels business groups are getting twitchy. “Now, this won’t initially affect Australia business to a material extent, except we will face increased UK commercial competition in Asia and the emerging markets, but there is everything to play for in the days until the end of March, and then beyond the end of days.”

Most surprising is the way the pound gained in value after the vote – despite predictions a crushing defeat would send it down. “Chances are, the markets are now betting on Brexit being, at least, postponed,” he suggests.

For further comment call Tim Harcourt on 02 9385 38160408 485 479, or Email tim.harcourt@unsw.edu.au.