The UK government says its Brexit deal will hurt the economy
Posted November 28, 2018 6:13 a.m. EST
(CNN) — It's official: The British government's plan for leaving the European Union will be bad for the economy.
The government and the Bank of England will publish reports on Wednesday that outline the economic costs associated with a range of Brexit scenarios.
The UK economy will be worse off under all of them, UK Treasury chief Philip Hammond told Sky News.
"Yes, there will be a cost to leaving the European Union, because it makes our trade less fluid and it cuts us [off] from an important export market," Hammond said. "The important thing ... is to keep trade flowing as much as we can."
There are just four months remaining before Britain leaves the European Union, and it's still not clear whether Prime Minister Theresa May can deliver an orderly departure from the bloc.
The legally-binding divorce deal she has negotiated would give business much-needed certainty about the next two years. But she still needs to secure approval from a skeptical parliament, and a much looser agreement on the trading relationship after the transition period provides very few details.
If May's plan fails, potential alternatives include crashing out of the European Union without a deal, a second referendum or a general election in Britain.
Hammond told the BBC that while May's plan minimizes the damage, it will still leave the UK economy worse off than remaining in the European Union.
"It is true that the economy will be very slightly smaller, but if we do the deal in the way that the prime minister has set out and negotiated, that impact will be entirely manageable," he said. "If you look purely at the economics, remaining in the single market would give us an economic advantage."
May's plan includes a transition period during which most trading rules for companies will remain the same. It would also mean a close relationship with the European Union on trade in financial services, and broad cooperation on transportation and energy.
Economists say the worse possible outcome would be a chaotic Brexit. Crashing out of the European Union would sink the UK economy into recession, analysts have warned.
"A no-deal exit will have a much higher cost impact on the economy than the deal the prime minister has negotiated," Hammond said Wednesday.
Analysis by a group campaigning for a second referendum showed the UK economy would be 4% smaller by 2030 under May's deal. The National Institute for Economic and Social Research said on Monday that new trade barriers would make it difficult to sell services from the United Kingdom and discourage investment.