The likelihood of the United Kingdom crashing out of the European Union without a new trade deal is growing.
Political leaders in England and the European Union have warned that a "no-deal Brexit" is now likely, even as the two sides have extended trade talks beyond a self-imposed December 20 deadline.
A last-ditch effort aimed at reaching a trade deal was held between European Commission President Ursula von der Leyen and U.K. Prime Minister Boris Johnson in recent days but ended without an agreement. The two sides say they remain far apart on several key issues, notably fishing rights.
Speaking in London, Johnson warned that "the most likely thing now is we have to get ready for World Trade Organization terms."
If no deal is reached, the United Kingdom would be forced to trade with the European bloc of countries according to rules set out by the World Trade Organization. That would mean new tariffs and other barriers, such as regulatory checks and paperwork.
The British Prime Minister said his government will continue to try and reach a trade deal, but warned there may not be a resolution by the January 1 deadline. "I do think there is a deal to be done but we remain far apart on key issues,” said Johnson, adding “We have to take back control of our fisheries."
The European Union and the U.K. have been trying for months to agree on a trade deal before the Brexit "transition period" ends at midnight on December 31. Earlier this week, a joint statement by Johnson and von der Leyen cited three critical sticking points: fishing rights, the U.K.'s ability to diverge on European standards, and legal oversight of a new trade deal.
Failing to reach a trade deal would be economically painful for both the European Union and the United Kingdom, although the impact on the U.K. would be disproportionately larger because the European Union is by far its biggest trading partner. Losing access to the European Union’s single market would cut U.K. businesses off from Europe's 450 million consumers and burden them with extra tariffs and red tape.
The U.K. Office for Budget Responsibility estimates that a no-deal Brexit would knock off £40 billion ($53 billion U.S.), or 2%, of the United Kingdom's economic output in 2021, and leave more than 300,000 people unemployed by the second half of next year.
