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UK: Covid-19 and Brexit put pressure on the economy – Nord LB column

The United Kingdom is currently suffering very badly from the coronavirus crisis. The country’s health system is reaching its limits. Accordingly, a very tough lockdown has now been imposed on England, which has a significant impact on daily life and should therefore continue to burden the country’s economy.

The extremely difficult Covid-19 situation in the United Kingdom, which has required tough measures in the fight against the virus, is likely to have been an important factor in our view that put British politicians under pressure to act in December to find a Brexit solution Has. With an even bigger no-deal chaos at the start of the year, the countermovement in economic activity in the United Kingdom, which is still to be expected, would have been completely absent. In this respect, one was under a certain pressure to be more accommodating to the EU in terms of fishing rights than some politicians in London had actually wanted. The deal at least prevented additional burdens from tariffs and quantity restrictions in trade with the EU. However, Great Britain left the common internal market on December 31, 2020 and a new customs border has existed since January 1, 2021. In this respect – even if there are in principle no customs duties for goods – customs and certificate controls have become necessary. However, only goods that meet the respective rules of origin are duty-free. The customs formalities that are now fundamentally necessary in trade between the United Kingdom and the EU undoubtedly lead to increased effort – and thus also to costs for the companies involved in the delivery of the goods. With a view to the rules of origin, the devil is also in the details. Furthermore, customs duties are due where goods are first imported and then immediately exported again. In addition, rules of the game have been agreed to ensure a level playing field, which allows London, for example, to introduce its own standards in labor law issues. However, an arbitration tribunal can allow both sides specific tariffs as compensation to ensure fair competition. Therefore, there are now new bureaucratic processes to which the economy must first adjust.

Furthermore, there is a special regulation with the Northern Ireland Protocol that has prevented a “hard” border with the Republic of Ireland. However, this regulation also creates problems, as domestic deliveries to this part of the United Kingdom must now be treated differently than, for example, the movement of goods between England and Wales or England and Scotland. Many British companies are currently not sure how to deal with the new formalities. In this respect, the press reports about delivery bottlenecks in Northern Irish supermarkets are not really surprising. Even if this is primarily a “jerk” at the start of a new and changed future, the effort for the British companies will remain increased in the future. In this respect, the call by Northern Irish business associations for further talks between London and Brussels and for greater clarity from the British authorities is no surprise.

Conclusion: The British economy is currently suffering severely from the new coronavirus. The “last minute deal” with the EU will at least prevent unnecessary burdens from Brexit, but there is now a new customs border that will undoubtedly lead to more bureaucracy. This is also a problem for the UK economy. This increases the likelihood of a revision of our UK growth forecast downwards.

Live stream on December 14, 2020 from 6 p.m .:

With Hans-Werner Sinn, former President of the Ifo Institute.

With Hans-Werner Sinn, Former President of the Ifo Institute: Corona and the miraculous increase in money in Europe
– Here is the stream! –

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