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UK risks lasting economic scars from Covid and Brexit, OECD warns

UK risks lasting economic scars from Covid and Brexit, OECD warns

The UK will need to invest heavily in digital infrastructure and drive through reforms to raise productivity if it is to repair long-term economic damage left by the Covid-19 crisis and the effects of Brexit, the OECD said on Wednesday.

Britain’s economy is one of the hardest hit by the pandemic among the 37 tracked by the international organisation, which said UK gross domestic product was set to be 10.1 per cent smaller at the end of 2020 than it was a year earlier and to recover only some of the ground in 2021, with growth of 7.6 per cent.

These forecasts are contingent on the course of the virus, and the extent of restrictions needed to contain it, but the UK’s prospects are even more uncertain because of the risk of a disorderly exit from the EU single market, which the OECD said could depress GDP by 5 per cent over two years.

Further public investment would be needed in digital infrastructure, such as high-speed broadband in deprived or rural areas, and the government could do more to push the transition to green technology, for example by making support to businesses in polluting industries conditional on switching to cleaner processes.

“Actions taken to address the pandemic and decisions made on future trading relationships will have a lasting impact on the UK’s economic trajectory for years to come, so they should be in line with long-term objectives,” said Laurence Boone, the OECD’s chief economist. “Productivity growth in service sectors will have to accelerate significantly for the recovery to be long-lasting and sustainable,” she said.

The immediate challenge is to support low-income households and get people back into good jobs, it found. Alvaro Santos Pereira, the OECD’s director of country studies, said higher unemployment would have “a massive impact” if it

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Disorderly Brexit could damage UK’s economic recovery from Covid, says OECD

Disorderly Brexit could damage UK’s economic recovery from Covid, says OECD

Britain’s economy faces a double risk to recovery from a disorderly Brexit as the coronavirus pandemic drags down growth, the Organisation for Economic Co-operation and Development has warned.

a car parked on a sidewalk: The UK car industry and food and textiles producers could be hit hardest by a disorderly Brexit, suffering a fall in exports of more than 30%.

© The Guardian
The UK car industry and food and textiles producers could be hit hardest by a disorderly Brexit, suffering a fall in exports of more than 30%.

On the eve of a critical EU leaders’ summit in Brussels, the influential Paris-based thinktank said the Covid crisis would further complicate a disorderly Brexit as companies were less prepared for the end of the transition period, having diverted attention away from leaving the EU.

It warned that failure to secure a free trade agreement before the UK leaves the Brexit transition period at the end of December would leave the economy 6.5% lower in the next few years than would have been the case if existing arrangements with the EU had been maintained.

In a development with potential to cause severe disruption for cross-border trade, it said a disorderly Brexit would have the most significant impacts for manufacturing, with the UK car industry, food and textiles producers hardest hit, suffering a fall in exports of more than 30%.

Álvaro Pereira, the director of the country studies branch at the OECD, said: “We know Covid has been the largest economic shock and social shock in the last few decades all across the world. Brexit obviously compounds the issue.

“The most important thing in the next few days and months is to focus on a deal, so the closest possible relationship is established between the UK and EU. Both parties lose if there is no deal.”

Publishing its first major economic survey of the UK since 2017, the OECD said a disorderly Brexit had potential to compound the risks to the British economy from

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Brexit disruption to firms ‘unavoidable’ with worst to come

Brexit disruption to firms ‘unavoidable’ with worst to come

Britain's Prime Minister Boris Johnson wears a protective face covering as he arrives at the BBC in central London on October 4, 2020, to take part in the BBC political programme The Andrew Marr Show. - British Prime Minister Boris Johnson and EU chief Ursula von der Leyen on Saturday asked their negotiators to "work intensively" to overcome differences to secure a post-Brexit free trade deal. (Photo by JUSTIN TALLIS / AFP) (Photo by JUSTIN TALLIS/AFP via Getty Images)
Prime minister Boris Johnson. Photo: Justin Tallis/AFP via Getty Images

UK firms risk collapse on a “significant” scale if Brexit leaves them struggling to raise cash in the sectors most exposed to trade disruption, a think tank has warned.

A new report by the Institute for Fiscal Studies (IFS) sounds the alarm over the economic toll as Britain’s EU trade relationship unravels when it sees Brexit ‘go live’ at the end of the year. A transition period, keeping Britain closely tied to the bloc, expires on 31 December.

“Deal or no deal, substantial economic disruption in early 2021 is now likely unavoidable,” said the bleak IFS analysis published on Tuesday. “The majority of Brexit-related adjustment lies ahead.”

READ MORE: UK unemployment hits 1.5 million on leap in redundancies

Yet some consequences could last for decades, according to the study, with areas and workers linked to EU-reliant manufacturing, financial and business services falling victim to a “substantial restructuring” in the economy.

The biggest effects of Brexit are also likely to hit sectors different to those hardest hit by the pandemic, according to researchers.

Watch: What is a no-deal Brexit and what are the potential consequences?

The IFS warns:

  • The UK government’s red lines — resisting EU rules on standards or any transition extension — mean even a new deal will be “much closer” to no-deal than former prime minister Theresa May’s ‘Chequers’ plan. “This sort of agreement is unlikely to avert most of the adverse consequences for UK–EU trade associated with Brexit.”

  • GDP growth will be 2.1% lower next year than if the UK remained closer to the EU, staying in its single market and customs union. In a normal year, this would be enough to push the economy into recession.

  • A likely “thin” trade deal will mean new barriers

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U.K. Government Split Over Carbon Market After Brexit

U.K. Government Split Over Carbon Market After Brexit

(Bloomberg) —

a man wearing a suit and tie: Rishi Sunak

© Bloomberg
Rishi Sunak

U.K. Chancellor Rishi Sunak’s Treasury is locked in a battle with Alok Sharma’s Business Department over how to ensure polluters pay for their emissions after Brexit.


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The Treasury is pushing to replace the European Union’s cap-and-trade system with an economy-wide carbon tax, which would come into effect after Britain exits the bloc in January. The Department for Business, Energy and Industrial Strategy is drawing up a new emissions-trading system to start in January similar to the EU program that the U.K. currently participates in.

One person familiar with the debate predicted that an ETS was a likely option, and a hybrid is also being considered. A decision is expected soon. It is likely to be announced by Dec. 12, when Prime Minister Boris Johnson will co-host a United Nations meeting on climate action, where he is expected to reveal a new 2030 climate pledge and encourage other countries to set their own goals to bring net emissions to zero.

But with just a little over two months to go before the U.K. leaves the EU and no deal agreed, businesses and traders are becoming increasingly concerned over the lack of certainty for how they’ll be charged for their pollution and whether the U.K system will be linked to the EU’s ETS.

“We’re really running tight on time if they want to implement an ETS,” said Jahn Olsen, analyst for BloombergNEF. “A tax has a lot of obvious disadvantages.”

The U.K. is still negotiating to find a way that could tie a U.K. cap-and-trade system to the EU ETS — if it does opt for that system. But if no deal can be struck, BEIS officials say a standalone U.K. ETS would be just as effective. The EU ETS is the world’s biggest

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Brexit endgame, UK jobs data and IMF World Economic Outlook

Brexit endgame, UK jobs data and IMF World Economic Outlook

Coronavirus and the possibility of second lockdowns is sure to give markets the jitters. Photo: Getty
Coronavirus and the possibility of second lockdowns is sure to give markets the jitters. Photo: Getty

Markets will be steered by coronavirus infection rates and whether fresh data will show a resurgent impact of COVID-19 on the global economy.

Meanwhile, investors will also eye the politics and stimulus talks in the run up to the US presidential election.

All focus will be on the closely followed International Monetary Fund’s (IMF) World Economic Outlook report, with expectations of a modest upgrade in 2020 figures to -4.9% and +5.4% in 2021.

“While we may see a modest upgrade to the 2020 number, expect much focus on the downside risk to the 2021 figure based on second wave challenges. A concerted push for fresh fiscal stimulus from central bank speakers looks likely too,” analysts at ING said.

On Tuesday, the Organisation for Economic Co-operation and Development (OECD) will release its latest analysis of the UK economy — it could be tough reading for a government trying to address the twin challenges of coroanvirus and Brexit. 

There is another “special” Apple (AAPL) event on Tuesday, the last one in September saw the tech giant delay the release of the iPhone 12 after the coronavirus pandemic slowed production. There are rumours the flagship smartphone will come in four different sizes and that Apple will release new over the head headphones.

Elsewhere: September trade balance for the second-largest economy, China is due on Tuesday. The country is the world’s largest importer of minerals so the perception of the nation’s health often influences commodity prices. Watchers will also focus on vehicle sales, credit and money supply data to assess the pace of economic recovery.

Other weekend developments markets will also digest:

UK: Brexit deal deadline, unemployment data and more COVID-19

So is the Brexit endgame really in sight? The EU summit on 15 and 16 October will evaluate the progress. . Photo: Aaron Chown / POOL / AFP via Getty
So is the Brexit endgame really in
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