No-deal Brexit would cost EU economy €112bn

Trading bloc would suffer more in lost output than thought, although lack of trade deal would cost UK around £125bn

A no-deal Brexit would cost the remaining 27 EU nations €112bn in lost economic output, according to research by a UK-based thinktank.

Although the UK would still be the biggest loser from crashing out of the EU single market and customs union without a new trade deal – with a cost to the economy of £125bn by 2020 – the EU would also suffer a bigger economic hit than previously thought by the end of the decade, according to the consultancy Oxford Economics.

The analysis spells out the negative implications of Brexit for the largest European economies, as ministers prepare for complex negotiations with Brussels over the UK’s future trading relationship with the single market bloc. Although the focus has so far been on the impact for the UK, the report shows the risks for both parties in the event Britain falls back to trading on World Trade Organisation rules, which would lead to greater costs from trade tariffs and the slower movement of goods across borders.

According to the research, the direct impact for the EU from lower levels of exports and imports with the UK would be about €50bn in lost economic output should the UK revert to trading on WTO rules. However, that number rises to €112bn – albeit spread among the remaining 27 member countries – if firms lower-down in the supply chain of companies directly involved in trade with the UK also reduce activity.

Germany would be most exposed to a supply chain shock, as its firms account for about one in 10 of all goods used by European companies in their production processes, rising to as much as 18% in the motor industry – which is the EU’s largest export to the UK. The biggest economic shock would hit Ireland, due to the sizeable role the UK plays in its import and export markets.

The estimates are the latest attempt by economists to quantify the potential impact from Brexit, which have often come with mixed results. Economists typically make varying degrees of assumptions about the future, using differing variables, and may often be proven wrong at a later point. The pro-Brexit economist Patrick Minford, whose analysis has been robustly challenged in the past, said this week that Britain would reap a £640bn benefit from crashing out of the EU, while arguing EU nations would suffer economic damage worth £500bn.

Ministers have so far shown optimism over the chances for securing a bespoke trade deal governing both goods and services, in sharp contrast to the EU’s resolute stance over a take-it-or-leave-it offer similar to the trade deal with Canada, which is far more limited in its scope.