Johnson’s Brexit: a lesser evil for the UK economy?

British Prime Minister Boris Johnson’s Brexit deal, which was welcomed by business with a sigh of relief, could limit the damage of a hard EU departure but still won’t be painless.

Business leaders see any deal, however imperfect, as better than leaving the bloc on October 31 and immediately returning to sky-high customs duties and other restrictions.

If parliament passes Johnson’s agreement on Saturday, the lifting of uncertainty will give renewed momentum to the economy, boosting potential investment, including from overseas.

Consumption could also increase.

But economists Euler Hermes warned in a note: “In the short term, the deal will not help the UK avoid a technical recession.”

Economic activity has slumped because of more than three years of uncertainty caused by Brexit talks since the landmark 2016 referendum on Britain’s EU membership.

Growth is sluggish and activity even contracted in the second quarter of this year.

If the deal goes through, factory output and purchases will slow as the stockpiles built up in anticipation of a possible “no-deal” are reduced, Euler Hermes said.

Longer term, Jonathan Portes, of The UK in a Changing Europe think-tank, said Johnson’s deal was “significantly worse for the UK economy” than that of his predecessor, Theresa May.

“The reason for the significant economic difference between May’s deal and Johnson’s proposals is because Great Britain will have no customs union with the EU, no level playing field arrangements and a limited, or quite possibly no free trade agreement,” he told AFP.

“The Brexit proposal by Boris Johnson could reduce UK GDP per capita 10 years after Brexit by between 2.3 percent and 7 percent, compared to remaining in the EU,” he added.