As Britain’s trade talks with the European Union edge closer to collapse, the Chancellor’s autumn headache swells.
The Budget will need to deal with a Covid-19 jobs crisis that is expected when the furlough scheme ends in October, as well as cushioning the blow to businesses hit by higher tariffs and non-tariff barriers if Britain trades with the EU on World Trade Organisation terms – the chances of which are rising by the day.
David Gauke, the former cabinet minister and critic of the current administration, has warned that the Government’s plan to over-ride elements of the Brexit Withdrawal Agreement with Brussels suggested that a deal was unlikely. “They do not seem to be bluffing,” he added.
For Andrew Goodwin, of Oxford Economics, though, the move appears to be mere “sabre-rattling”. He estimates the chance of a deal being struck is still 60pc “given the strong motivations for the UK to reach an agreement”.
The next five weeks, leading up to the European Council meeting in mid-October, which both sides have set as a hard deadline for reaching an agreement, will be crucial.
Goodwin’s inbox is clogged with notes from anxious clients who want to understand the consequences of no trade deal being reached.
He estimates that, relative to staying in the EU, if a deal is struck, GDP would fall by 3.1 percentage points over the next decade. Failing to reach a deal would cut GDP by 3.9 percentage points.
“This is clearly not good news for business confidence and looks set to further weigh on business investment, which is already clearly the weak link in the economy’s bounce back,” Howard Archer, chief economic adviser to the EY Item Club, a forecasting group, says.
“It may also very well fuel concerns over employment and increase the already serious risk that there will be a sharp rise in joblessness in the fourth quarter.”