In a blog posting the free-market British think tank, the Centre for Policy Studies (CPS), has suggested that the absence of a trade deal between the UK and EU following the UK's departure from the EU would not be as bad for the UK auto industry as is often suggested, not least by the industry itself.

The CPS said that having to resort to WTO trading conditions amounts to 'short-term teething problems'.

It suggested that manufacturers using 'just-in-time' processes and worried about supply chain disruption are already looking into solutions, such as warehouses to build up larger supplies and stocks.

On the possibility of 10% tariffs applying to UK made cars exported to the EU, the CPS argued the UK government could implement a range of policies to negate the adverse impact to UK producers.

It said the UK government's likely first move in a no-deal scenario would be to commit itself to a reduced corporation tax rate of 10%. Dropping the corporation tax rate to 10% would not only help to cancel out the newly imposed tariffs for existing firms in Britain but it would also make the country a far more attractive location for further FDI, it said.

The CPS also said the UK would have the ability to 'forge new bilateral trade deals with countries outside the Union, which would result in increased car exports to non-EU markets as well as reduced car prices for UK consumers'.

It added that the British government would have an 'enormous war chest of cash' it could use to provide subsidies to firms that were struggling during the transition. This would come from the GBP13bn it would save annually in membership fees, as well as the GBP55bn it wouldn't have to pay in a divorce bill, the CPS said.

The UK government and the EU have yet to start negotiations on future trade arrangements, with talks so far centred on the terms of the UK's exit. However, the UK government has said that it plans to leave the EU customs union and single market. Since the referendum result to leave the EU in June 2016, sterling has depreciated by around 10% versus the euro.