The dreaded scenario of a no-deal Brexit

As negotiations between the United Kingdom and the European Union for their post-Brexit relationship approach Sunday’s deadline, the prevailing uncertainty has rekindled fears of the consequences of a no-deal scenario, which threatens to collapse ports and the pound, as well as trigger a wave of issues in many other areas from December 31.

Both sides have spent the past fortnight in a last-ditch attempt to reach a consensus, but major differences remain, especially in areas relating to trade and fisheries.

There is more to be sorted out than just a free trade agreement that avoids trade tariffs. The UK has been part of the EU’s structures for more than 40 years and its withdrawal from the bloc has forced a rethink of innumerable aspects of Britain’s relationship with the remaining 27 member states.

These are some of the potential consequences of an increasingly likely no-deal Brexit:

TRAVEL

Without a specific aviation agreement, a no-deal Brexit would ground flights between the UK and the EU from 1 January, although there is an expectation in the sector that both sides will establish contingency mechanisms to maintain air links in any scenario.

EU citizens will still be able to use their national identity cards to enter the UK when the transition period ends. Europeans who were resident in the UK before December 31 will be able to continue showing that card at least until 2025, while newcomers will only be able to do so until October.

Due to current regulations because of the coronavirus pandemic, travel from the British Isles to EU states will be restricted to essential trips after the transition period ends, if no other arrangements are agreed upon by both parties.

PORTS AND CUSTOMS

From 1 January, customs controls will be carried out on goods crossing the Channel, even if there is a deal, given that the UK will be disconnected from the single market and the Community customs union.

But a trade agreement could reduce the amount of bureaucracy required and speed up inspections, while a withdrawal with no deal would likely pave the way for a collapse at ports.

The British government is working with scenarios of queues of up to 7,000 trucks, each of which would have to wait up to two days to cross the Channel.

The EU has said that it intends to carry out full checks on all goods arriving from the UK from day one, while London has scheduled a phased entry of customs requirements over six months to try to minimize friction.

IMMIGRATION

The free movement of citizens between both sides of the Channel will end this year, so those who arrive in the country for the first time from January t with the intention of residing in the UK will have to apply for a permit under the new immigration rules.

No deal would leave issues such as mutual recognition of professional qualifications and mechanisms for transferring pension rights and other benefits between the UK and EU member countries up in the air.

The European Health Insurance Card will no longer be valid for Britons visiting EU countries and EU tourists in the UK, so private health insurance will be recommended.

As for students, a hard Brexit would end the European Erasmus program, although the British government has already proposed to create an alternative mobility mechanism in the future.

SUPPLY AND PRICES

The foreseeable problems at customs have led to fears of a shortage of certain products on British shelves, especially of perishable foods.

The imposition of tariffs would also increase the price of many products. The supermarket chain Tesco estimates that the cost of the shopping cart would increase by around 5 percent without an agreement, although government estimates are between 2 and 3 percent.

The British Retail Consortium (BRC) has warned that 85 percent of food imported from the EU would be subject to tariffs of more than 5 percent, including 48 percent on minced meat, 16 percent on cucumbers and 10 percent on lettuce.

POUND STERLING AND FINANCIAL MARKETS

The breakdown of negotiations could lead to an immediate collapse of the pound, even before December 31. Some experts estimate that the British currency could lose up to a fifth of its value against the euro and the US dollar.

The Bank of England has also warned that a no deal Brexit could trigger instability in the markets that would force it to intervene, as it did in March at the beginning of the coronavirus crisis.

Financial services firms in the United Kingdom have been preparing for all possible scenarios over the last few years and are confident that they will keep a good part of their business going if the transition period comes to an end without an agreement.

However, clients residing in EU countries but with accounts in UK banks will have problems operating if the institutions have not expanded their operations to the state in question.

INDUSTRY AND PRODUCTION CHAINS

Friction at the border is especially problematic for factories with just-in-time (JIT) production lines, a system designed to increase manufacturing efficiency and reduce storage costs.

These supply chains receive the necessary parts at the moment they are intended to be used, sometimes within minutes, many of which arrive from European Union countries, so friction at customs would put their operation in check. This has already happened this week at Honda's factory in Swindon.

SECURITY AND DATA

In the case of no deal, there will be no legislation to regulate the transfer of data between both sides of the Channel, which would hamper digital services that depend on sending all kinds of information between countries.

The UK and EU will also no longer have mutual access to their security databases, which will hinder the arrest and extradition of criminals, among other problems.