WE live in not so much ‘interesting times’ as increasingly disturbing and indeed dangerous times. This is reflected in an economic outlook which is becoming more and more uncertain and where the extreme downside risks – associated with a ‘No Deal’ Brexit - have gone from minimal to substantial.

This increase in the ‘no deal’ risk is, of course, associated with the probability of the new UK Prime Minister being prepared to accept, even welcome, a ‘no deal’ outcome.

The members of the Conservative Party who will shortly elect their new leader – and hence the new PM – appear blind to the risks of leaving the EU with no agreement. There is some largely unjustified belief that such a departure will be softened by a move to WTO – World Trade Organisation – rules. However, a move to WTO rules would mean significantly higher tariffs, at least on an extended interim basis, on trade with the great majority of our key trading partners. This would cover exports and imports, for Scotland as well as the UK as a whole. The competitive position of our exports would be damaged; and the cost of imported goods would rise.

At the same time we would see a further downturn to inward investment and more companies with existing investments in Scotland and the rest of the UK would implement plans for partial or total departure. The real story about the recent pronouncement on the Vauxhall Astra is not so much that the new model may be built in the UK as that it will definitely not be built here in the event of a ‘no deal’ Brexit.

The extent of the risk for Scotland can be grasped from the latest Fraser of Allander (FAI) forecasts. In their central forecast they assume an orderly departure at the end of October. This leads them to forecast GDP growth for 2020 and 2021 at the perfectly reasonable, by recent standards at least, rates of 1.4% and 1.5% respectively.

Given recent developments, however, all the focus should be on their downside risk scenarios. A ‘no deal’ exit with a significant policy response would mean decline of 1.4% in 2020 and growth of 0.9% in 2021; while the ‘no deal no policy response’ worst case scenario results in a decline in GDP of a massive 4.2% next year, before a bounce back of 1.4%.

The policy response would have to come through some combination of UK monetary and fiscal policies. On the monetary front the scope to cut interest rates is historically very low, so that would imply another dose of Quantitative Easing, with nobody really knowing how much that has helped in the past or would help in future ‘no deal’ circumstances.

The fiscal policy response would come through some combination of increased public expenditure and tax reductions. Present UK public finance plans would have to be torn up and thrown away and we would end up with a markedly higher fiscal deficit than at present expected, implying tighter fiscal policies (more austerity) later in the coming decade to get finances back on a sustainable tack.

As the FAI folk always emphasise, forecasts are fragile beasts. But the direction of travel is transparently clear.

There are perhaps three key elements to the downside impact of the worst case ‘no deal’ story.

The first element is trade. It is more straightforward and more economically efficient to trade with nearer neighbours -subject of course to the economist’s usual cop out of ‘ceteris paribus’ - other things remaining equal. Our trading relationship with our nearest neighbours will be adversely affected. Also higher tariffs cause disruption and costs, not just as far as trade in final products is concerned but also for inputs into our goods and services. This will apply for some indeterminate and likely extended period and just when the world appears at risk of splitting into three trading blocs, based around the USA, China and Western Europe.

A second element is investment. We have seen, in the words of the FAI, ‘mounting evidence that the uncertainty is impacting upon investment’. That is an understatement. Business investment remains in decline in Scotland and a ‘no deal’ exit would only make matters worse. Lack of investment means loss of competitiveness, continuing low or negative productivity growth and a long term adverse impact on economic welfare.

Then there is the impact upon our population and labour market. Scotland has a population which is ageing more rapidly than that of the UK as a whole. This has implications for the tax base and the demand for public services; but it also means that our labour market has been increasingly reliant upon immigration, for a number of key sectors in particular.

Brexit is reducing our ability to import such labour, while, given sterling’s sharp depreciation, the UK has become a less favourable location so far as potential immigrants are concerned. This is even more the case in Scotland where earnings growth is lagging the UK as a whole. Fewer key workers will be allowed in; and fewer will want to come. The impact of labour and skill shortages will be felt increasingly in the months and years ahead.

We can but hope that over the next few weeks sense prevails and either we move to Brexit ref2 or (more likely) Parliament and Government (note the order here) rule out the disorderly exit option and work towards an orderly, albeit again delayed, UK exit from the EU. The medium and long-term interests of the UK must come before the selfish, short-term interests of one political party.

Jeremy Peat is a visiting professor at University of Strathclyde