Using macro-econometric modelling, Rabobank assessed the effects of the UK leaving the EU in three different scenarios: leaving without a trade deal, leaving with a free trade agreement, and a “soft” Brexit where Britain leaves the single market but not the customs union.
According to the study, the outcome of leaving without a trade deal in 2019 and no transition period would be a two-year recession period for the UK economy and a 2.4% drop in UK GDP while leaving.
For the other two scenarios – free trade agreement and “soft” Brexit – would still result in a recession, albeit a “milder and much more short-lived” one.
Securing a free trade agreement, similar to Switzerland, while leaving the EU would cost the UK 12.5% of GDP growth by 2030.
Contrastingly, if the UK were to stay in the single market but leave the customs union it would cost 10% of GDP growth, says Rabobank.
“By looking at dynamics such as innovation, competition, knowledge and human capital, how they will change and what affects this will have on the structural makeup of the UK and European economy, our research shows that the long-lasting impact of Brexit is likely to be more severe than initially anticipated,” said Rabobank’s senior economist Hugo Erken.
Leaving without a trade deal would lead to a 30% lower export volume compared to a 10% drop with Britain staying in the single market and a 15% drop with reaching a free trade agreement.
The report also shows there would be a rise in unemployment figures, with a “hard” Brexit causing a 4.6% jump in 2018 to 6.2% in 2020 before returning to normal.
Rabobank predicts in a scenario where Britain stays within the single market, the unemployment rate would stay above 4%.
On Wednesday, chancellor Philip Hammond said more money would be released to help prepare for the possibility of a “no deal” in talks with the EU.