Hard Brexit Seen Stinging U.K.'s Auto, Tech and Health Sectors

(Bloomberg) -- A hard Brexit could be a lot more painful for the U.K. than for the European Union.

Britain’s automotive, technology, health-care and consumer goods sectors may lose 17 billion pounds ($22.8 billion) a year in export revenues when the U.K. leaves the single market and customs union, according to a report released Monday by Chicago-based law firm Baker & McKenzie LLP and consultancy Oxford Economics Ltd. The sectors account for 42 percent of the U.K.’s manufacturing GDP.

The report highlights that the British-EU trading relationship is sometimes heavily tilted in Europe’s favor. EU countries buy about half of the U.K.’s exports, while the U.K. accounts for just 9 percent of EU goods. That means if British goods become relatively more expensive, because of tariffs or other regulatory costs proposed as part of a hard Brexit, Europeans could switch to cheaper alternatives and deliver an intense blow to U.K. exporters.

“You can understand why there is now mounting pressure for the U.K. to negotiate new customs arrangements for post-Brexit trade with the EU,” Jenny Revis, a Baker & McKenzie lawyer, said in an emailed statement. “And for companies to work with their industry groups to help shape future trading relations with the EU.”

Automakers would be the most affected, according to the report. The industry would lose 7.9 billion pounds in annual export revenue due to tariffs that add 8 percent to the cost of exporting a vehicle to Europe. An additional 5 percent would be added for non-tariff measures, such as compliance paperwork.

The consumer goods industry would be the second-hardest hit, possibly losing 5.2 billion pounds a year. The category includes food and drink manufacturers as well as tobacco, clothing and leather product companies.

The report also says rising costs and a possible skills shortage may motivate companies to leave the U.K. Over half the businesses in the U.K. automotive sector are owned by non-EU parent corporations while 44 percent of the healthcare industry is made of non-U.K. owned companies.