Brussels predicts UK economy will slowly recover from Covid impact even if there is no Brexit deal

James Crisp
David Frost and Michel Barnier have failed to find a Brexit breakthrough after 14 days of intensive talks.  - Reuters
David Frost and Michel Barnier have failed to find a Brexit breakthrough after 14 days of intensive talks. - Reuters

Britain's economy will still recover from the devastating impact of the coronavirus pandemic even if there is a no-deal Brexit, the European Commission has predicted.

The commission's Autumn Forecast is the first based on assumption that trade talks with Brussels will fail and the UK will leave the transition period on WTO terms on January 1. 

This year, the UK's real GDP is expected to shrink by 10.3 percent because of the economic impact of the pandemic. Next year, after no deal, it will grow back by 3.3 percent.

British unemployment is predicted to rise from 3.8 percent in 2019 to five percent this year and up to 7.3 percent after no deal. 

A shift to WTO terms "is expected to slow down the recovery", said Paolo Gentiloni, the EU commissioner for the economy, in Brussels. "A future EU-UK trade agreement would mean a positive impact on economic activity from 2021, as compared to the forecast baseline," Mr Gentiloni, a former Italian prime minster, added. 

He said the decision to base predictions on no deal were "a technical assumption" and without prejudice to the outcome of the ongoing trade negotiations

Paolo Gentiloni said a shift to WTO terms 'is expected to slow down the recovery' - John Thys/AFP
Paolo Gentiloni said a shift to WTO terms 'is expected to slow down the recovery' - John Thys/AFP

The forecast projects that the EU economy, which will also be hit by no deal, will contract by 7.4 percent in 2020 before recovering with growth of 4.1 percent in 2021. The economies of Eurozone countries are expected to shrink by 7.8 percent on average this year because of the virus and grow back by 4.2 percent in 2021. 

The forecast projects the unemployment rate in the euro area to rise from 7.5 percent in 2019 to 8.3 percent this year and 9.4 percent in 2021. The unemployment rate in the EU is forecast to rise from 6.7 percent in 2019 to 7.7 percent in 2020 and 8.6 percent in 2021. 

There is a break in formal UK-EU trade negotiations after 14 days of intensive talks yielded no breakthrough on the three major issues of fishing, the "level playing field" guarantees and the deal's enforcement. 

Negotiations are expected to resume in London on Sunday, but informal talks are continuing between senior officials in the meantime. 

Both sides hope to agree a zero-tariff, zero-quota trade deal by mid-November so there is enough time to ratify the agreement before the no deal deadline of the end of the year. 

Robert Buckland, the Justice Secretary, told BBC radio this morning that he was "cautiously optimistic" a deal could be struck.