While the British business community has largely welcomed the 21-month Brexit transition period agreed by Britain and the EU earlier this week, new analysis released echos long-term business concerns after Brexit.
A report released on Tuesday by UK researchers at the Institute for Fiscal Studies said that Britain’s departure from the EU customs union would give the UK the opportunity to set its own trade policy and slash tariffs on imports, leading to lower prices for consumers.
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However, a complete removal of tariffs between UK and EU, would only lead to price reductions of around 1.2% overall, considering the 2% increase in consumer prices caused by the depreciation in sterling in the wake of the referendum result, the report said.
Removing trade tariffs completely would also threaten certain UK industries, leading some to suggest that tariffs should only be lowered on goods that the UK does not produce itself.
“Leaving the EU Customs Union would likely create additional costs for UK firms trading with the EU,” the report said.
“Firms will likely be affected by customs delays and storage costs that would result from the erection of customs barriers on trade with the EU.
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By GlobalData“New regulatory differences between the EU and the UK are also likely to create various non-tariff barriers to trade.
“Such changes would, other things equal, be expected to increase costs for consumers and work to offset the (already rather limited) gains from tariff reductions.”
Another report released shortly after the transition agreement was struck in Brussels, revealed that one in seven EU companies with UK suppliers have moved part or all of their operations out of Britain, causing a rise in prices as commercial links are disrupted.
The survey of over 2,000 supply chain managers by the Chartered Institute of Procurement and Supply (CIPS) found that a third of UK suppliers had already raised prices due to a weaker pound, while 41% planned future price hikes to cover the costs of Brexit-related border fees and other charges.
Why it matters:
The research shows that despite a transition deal providing reassurance to many EU companies operating in the UK, Brexit has already started to disrupt UK supply chains, causing companies to scale back their presence in the UK and raise prices.
In their report, CIPS warned:
“These numbers raise fears of an imminent collapse in the UK’s supply chain following Brexit, unless negotiators can give businesses on both side of the channel greater clarity around what the future trading relationship between the UK and EU will look like.”
Background:
On Monday Britain and the EU announced a conditional agreement for “an orderly UK transition” from the EU, which represented economic guarantees for Britain and a deal on the rights of 4.5 million EU citizens living in the UK.
The 21-month transition deal, which will enable the UK to remain in the EU customs union until December 2020, will be formally agreed at the EU leaders summit later this week.
