By Elle Hunt
Analysis from the Centre for Cities thinktank finds urban areas are likely be hit hardest by the increased trade barriers under both hard and soft Brexits
New research examining for the first time the potential impact of Brexit on cities and towns has found Aberdeen could be the hardest hit by higher trade costs with the European Union, though no British city will escape its effects.
The analysis by the Centre for Cities thinktank predicted that in the decade following the implementation of new trade agreements with the EU, every local authority area would be negatively affected.
The impacts would be greater in the case of a “hard” Brexit – where the UK would default to trading with the EU under World Trade Organisation rules.
A “soft” Brexit – if the UK joined a free-trade area with the EU – would lessen its negative effects across the board, especially in London, where economic output as measured by Gross Value Added (GVA) was predicted to decline by 1.3%, compared with 2.6% under a hard Brexit.
All British cities were “set to be negatively affected”, researchers predicted, with GVA on average 1.2% lower under soft Brexit and 2.3% lower under hard Brexit than if the UK remained in the EU. (Belfast in Northern Ireland was excluded due to a lack of available data.)
Aberdeen emerged as the city likely to be most affected in either scenario due to the impact of increasing costs on its oil sector, with a 3.7% forecast decrease in GVA in the case of a hard Brexit, and 2.1% in a “soft” scenario.
Worthing, Reading, Swindon and Slough were predicted to incur a 2.8% loss in the event of hard Brexit, followed by Edinburgh (-2.7%) and London, Aldershot, Leeds and Ipswich (-2.6%).
Generally, cities and towns with high levels of employment in private sector, knowledge-intensive services – such as Reading, London and Edinburgh, the three cities with the largest business and financial sectors – were likely to be most negatively affected by Britain leaving the EU.
Researchers also found a correlation, albeit not a strong one, between areas that voted Remain in last year’s referendum and those that were predicted to be most badly hit.
Crawley, the town predicted to be least affected by hard Brexit with a decrease in GVA of just 1.1% (and 0.7% under soft Brexit), was an outlier in the same regard as Aberdeen due to its reliance on the air services industry.
But the paper’s co-authors, Naomi Clayton and Prof Henry G Overman, warned against placing strong weight on the estimated effects on any particular sector when their analysis was likely underestimating Brexit’s total impact.
Their model did not take into account any effects on cities’ economies other than increasing trade costs – such as the impact on foreign investment and migration – nor how individual cities might adjust to them. At an national those additional factors took the costs of Brexit from a loss of 6.3% of national income to 9.5%.
Researchers warned that Brexit’s impacts would likely be felt differently over time, with the most-affected cities, predominantly in the South of England, also best-placed to adapt to the changes ahead due to their highly skilled workforces and relative wealth.
Less affluent cities could struggle to respond to the economic shocks of Brexit, despite being less directly impacted in the short term.
The difference in urban areas’ ability to adapt could exacerbate existing inequality, researchers found, drawing parallels with the 2008 financial crisis, in which London and south-east England were hit hardest but recovered more strongly than other areas.
Andrew Carter, the chief executive of Centre for Cities, said the impact of either a hard or soft Brexit would be felt very differently across the country.
“Contrary to much of the received wisdom on Brexit, it is the most prosperous UK cities which will be hit hardest by the downturn ahead – but poorer places across the north and Midlands will find it tougher to adapt.”
He called on the government to strive to minimise the effect of the coming economic shocks by securing a trade deal with the EU that came as close to maintaining Britain’s current relationship with Europe as possible.
“But it’s also critical that the government uses its forthcoming industrial strategy to give cities across the country the investment, powers and responsibilities they need to make their economies as successful and competitive as possible.”