The impasse on Brexit deal might negatively affect exports of Bangladeshi goods to the UK as there is a possibility of higher inflationary pressure on Britons, stemming from higher cost of living.

A no-deal Brexit would see the UK leave without a withdrawal agreement and start trading with the EU on the basis of World Trade Organisation rules, according to the BBC.

As a result, the UK will lose some of the trade privileges it now enjoys among the EU nations. 

Currently, the UK is the third largest export destination for Bangladesh after Germany and the US. So any kind of financial uncertainty in the UK will hit Bangladesh hard, economists and exporters said.

“Of course, there will be a bad impact on shipments of goods from Bangladesh if the uncertainty over Brexit deal lasts long,” said Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), a leading think-tank.

The uncertainty over the Brexit deal will slow economic growth in the UK. At the same time, import costs will go up.

As a result, Britons will squeeze the limit of their expenditure, said the CPD fellow. “So the overall demand side will be affected due to the uncertainty.”

In February last year, the International Monetary Fund (IMF) warned that the UK needs to find ways to make its economy more efficient and that Brexit had already begun hurting the economy.

“Higher prices, caused by a weaker pound, have limited increases in people's spending, and uncertainty about the future relationship with the EU has kept some business investments on hold,” the IMF said in its annual report on the British economy, the CNBC reported on February 15 last year.

In its baseline scenario, the IMF estimated a 40 percent reduction in net exports of financial services to the European Union, given the government's decision to exit the single market -- the region where goods, people and services move freely in Europe.

If that really happens, Bangladesh's export to the UK will be affected beyond imagination, said Mustafizur.

Currently, over 240 British companies have operations in energy, power generation, oil and gas and financial services in Bangladesh.

According to Bangladesh Bank data, the UK was the second largest investor in Bangladesh in 2016-17, with FDI stock of $1.6 billion, the CPD said in a recent study.

The major share of this was in banking (53.9 percent), textile and apparels (15.9 percent), and food industry (11.5 percent).

But the fall in the value of British pound could adversely affect UK investment in Bangladesh, as it will make local procurement costly in GBP terms, the CPD said.

On several occasions, the British government said Bangladesh's exports to the UK would continue to enjoy duty-free benefits even after Brexit came into effect, and so trade would grow even more.

But Mustafizur said the uncertainty over the Brexit deal will affect British investment in Bangladesh while the remittance flow from the nearly 1 million Bangladesh-born British will decline.

And because Britain will likely be more conservative on labour migration from both outside and inside the EU, labour migration from Bangladesh will also take a hit, he added.

“So the government needs to set up a taskforce to assess the losses and to suggest the future action plans so that the UK market potentials remained unaffected from Brexit deal,” the economist added.

In fiscal 2017-18, shipments of goods from Bangladesh to the UK rose by 11.76 percent year-on-year to $3.99billion, according to the Export Promotion Bureau (EPB).

During the same period, only apparel export to the UK grew by 12.72 percent year-on-year to $3.72 billion.

“If the uncertainty prolongs, our exports to the UK will be affected,” said Zahid Hussain, chief economist at the World Bank's Dhaka office.

“Whatever the deal, we need to be prepared as the UK is our third largest export destination,” he added. 

Siddiqur Rahman, president of Bangladesh Garment Manufacturers and Exporters Association, also said apparel exports to the UK might be affected if the deal hit the UK economy.

SM Jahangir Hossain, president of Bangladesh Fruits, Vegetables and Allied Products Exporter's Association, said that in the short-term there was no possibility of any negative impact on vegetable export to the UK. It's another matter if the uncertainty lasts long.

The UK is a major destination for shipment of vegetables and fruits because of the nearly 1 million non-resident Bangladeshis living there.

Contacted, Additional Commerce Secretary Shafiqul Islam said they were yet to form a taskforce to assess the impact of the Brexit deal on Bangladesh.

“But the UK remains an important market for Bangladesh,” he added.