During the election campaign, Theresa May told Jeremy Paxman that no deal is better than a bad deal.
However, she may have to think again. According to research conducted by law firm Clifford Chance and consultancy Oliver Wyman, some UK industries could face dire consequences if the UK and EU are unable to agree on a mutually beneficial trade agreement.
The Report states that the additional 'red-tape costs' to cover non-tariff and tariff barriers would have to be carried by UK and EU firms, with UK industries coughing up £27 million and EU firms the remaining £31 million.
Such astronomical costs could "threaten to reduce profitability and pose existential threats to some businesses."
What happens in a no-deal Brexit scenario?
If the EU and UK fail to come to an agreement and establish a deal that is satisfactory to both sides, the relationship between the UK and the EU would once again be subject to World Trade Organisation rules. The deadline to reach a Trade Deal is the end of the transition period which begins in March 2019.
The report also points out that a no-deal outcome would leave certain industries particularly vulnerable. Agriculture, consumer goods, finance, the car industry, and the food and drinks industry would be likely to share 70 percent of the additional costs.
Because some of these industries are located in clustered areas, areas like London (finance) and Bavaria (automotive) would see the most drastic effects of a no-trade deal Brexit.
Remaining in the customs union would eliminate additional costs
Though the report suggests that remaining in the customs union would allow firms to avoid the costs of tariffs and border checks, Theresa May has been adamant in saying that doing so would "betray the vote of the people."
But the report points out that a comprehensive customs union post-Brexit, leaving current arrangements broadly in place, would eliminate a large proportion of the costs.
Tariffs and border costs could prove to be a significant burden for many UK and EU companies. To counter these ill-effects, the report suggests that companies could use domestic suppliers over foreign ones and perhaps choose different locations for the final stages of production. Additionally, improving IT systems and establishing greater warehouse capacities at borders could also help to reduce costs, the report explains.
Some industries more vulnerable than others
The authors of this report point to the financial sector as being in a particularly precarious position seeing as it doesn't operate a traditional goods supply chain. In contrast, the report considers the automotive and aviation industry as less vulnerable and more adaptable.
Discussions about the financial services industries in London have been ardent. Last week, both UBS and Goldman Sachs began transferring jobs to Frankfurt to prepare for Brexit. More job losses in the London area in this sector appear likely. While the UK government remains hopeful that banks will maintain their presence in London, the EU has been eager to point out that the UK finance industry will also have a different relationship post-Brexit.
The Bank of England has warned that approximately 10,000 financial services jobs could be at risk because of Brexit.
