Additional costs of £27 billion a year means costs will rise and profitability will fall no matter what the deal is, says study
A “no deal” Brexit will cost UK house- holds £1,000 ( 1,142) a year, with the impact disproportionately felt by poorer households, according to new research published by The Financial Times.
The study by consultants Oliver says that no matter what happens Brexit will mean higher household spending and lower profitability for consumer-focused businesses.
Under a “no deal” Brexit scenario in which all goods imported from the EU become subject to WTO tariffs, the overall cost to households would be £27 billion a year, or nearly £1,000 per household.
“In a scenario where the UK reverted to WTO most-favoured-nation import tariffs, we expect the price of a typical weekly grocery shop to go up by £5.50, a family meal for four at a high street restaurant chain to in- crease by £9, and a pair of trainers to cost £6.75 more,” said the report’s author Duncan Brewer for Oliver Wyman.
The research modelled five commonly discussed scenarios: a deal that left the UK out of the customs union but in the single market, and vice versa; one in which the UK achieved a tailor-made customs and single market deal; and two in which the UK leave the single market and customs union but, in one instance, apply WTO tariffs to imports and, in the other, unilaterally decide to apply zero tariffs to imports.
It found the annual average annual increase to household costs under the scenarios ranged from £245 to £96.
Further, for each 5 per cent that sterling devalued against the US dollar and the euro, household costs increased by a further £380 a year. Any subsequent free trade deals, which allowed the UK to move to zero-tariff trade with all non- EU countries, would reduce costs by £120 to £170.
Poorer households will see costs rise more than more affluent ones because they spend a higher proportion of their income – after housing costs – on groceries. Wealthier households spend more on services such as entertainment and hospitality.
“Cost increases on essentials like food and drink could create difficulties for many people in the UK, but the price changes won’t happen overnight,” said Mr Brewer. “However, consumers’ pockets are not limitless and they will cut back on discretionary purchases like holidays and eating out, putting pressure on businesses like restaurants and travel agencies.”
The financial burden of additional red tape or bureaucracy could be as high as the impact of new tariffs, ultimately costing households between £250 and £350 a year, says the report, as companies that rely on imported goods, such as supermarkets, will be most affected.
“It is possible that supermarkets’ profits will be wiped out unless they put prices up for shoppers,” Mr Brewer said.
A British Treasury forecast in April 2016 – ahead of the referendum – said that Brexit would lower UK economic output 6.2 per cent by 2030, bringing with it an average annual cost to British households of £4,300 a year.
Earlier this year the British government said growth would be reduced over the next 15 years, whatever the result of Brexit negotiations.