Hard Brexit could cost key manufacturing sectors £17bn a year, while farmers’ incomes could be halved: Reports and trade deal setback highlight uncertainties ahead

A hard Brexit could cost the UK’s automotive, tech, healthcare and consumer good sectors £17bn a year, as well as halving farmers incomes, according to new research.

The news comes after seven countries rejected a key part of Theresa May’s plan to reintegrate into global networks – highlighting her government’s vulnerability as it seeks to negotiate new trade deals outside of the EU.

A report by global law firm Baker McKenzie found that lost exports to the EU in the event of a hard Brexit would hit automotive, tech, healthcare and consumer goods manufacturers hard.

The four sectors account for 42 per cent of the UK’s manufacturing GDP and 45 per cent of manufactured exports to the EU.

The report forecasts the extent to which increases in costs to UK exports could lead to EU consumers switching to a domestically produced alternative or to a different exporting country, and the subsequent decline in UK export revenues.

The impact of a hard Brexit is most notable in the consumer goods and automotive sectors, with a predicted £7.9 billion loss in annual UK to EU export revenue in the automotive sector and a £5.2 billion loss in the consumer goods sector.

Baker McKenzie trade partner Jenny Revis said: “These figures indicate the extent to which the UK’s key manufacturing sectors are likely to be hit by the impact of a hard Brexit.

“You can understand why there is now mounting pressure for the UK to negotiate new customs arrangements for post-Brexit trade with the EU and for companies to work with their industry groups to help shape future trading relations with the EU.”

Meanwhile a separate report found that agricultural incomes could be slashed by half if the government crashes out of the EU with no deal.

The report, by the Agriculture and Horticulture Development Board (AHDB), urges farmers to boost their productivity to prepare for Brexit.

The average British farm is predicted to see its income fall from £38,000 a year to £15,000 if the UK removes barriers to low cost food producers from abroad. If the UK imposed protectionist trade barriers, incomes would drop to £20,000.

AHDB market intelligence director Phil Bicknell said: “The extremes of putting up protectionist barriers or opening up trade unilaterally to low-cost competition from around the world is bad news for the viability and profitability of UK farms on average.”

The reports come after the government suffered a crushing setback in one of the only areas it is has seen progress in during the EU negotiations: that of post-Brexit agricultural tariffs.

In August, Britain and the EU agreed that EU’s WTO quotas for international agricultural products will be reduced with Britain taking a share of them after Brexit.

The agreement hinged on the fact that outside countries would be “no worse off” because of the deal, however the US, Brazil, Argentina, Canada, New Zealand, Thailand and Uruguay have rejected the arrangement.

The deal was rebuffed by the group because under the current arrangements the quotas can be spread throughout the EU, meaning that if a product is not selling in one country it can be sold in another. However once the UK leaves the EU, its share of the quotas will no longer be transferable to other EU member states.

The setback was all the more painful for May because her government is attempting to leverage Britain’s long established relationships with the US and commonwealth countries such as Canada and New Zealand to achieve favourable trade deals.

The government’s ambitions to negotiate a trade deal with the mercurial Trump administration are looking increasingly unrealistic.

Just last week, it was revealed the government was powerless to prevent the US slapping massive tariffs on aircraft manufacturer Bombardier, potentially hitting thousands of jobs in Northern Ireland.