- A leaked government assessment of Brexit’s likely impact on the British economy shows that Brexit, in all its possible forms, will be a significant negative for the UK’s overall GDP.
- With no deal, growth would be reduced by 8%; with a free trade agreement, it would be 5%; and 2% if the UK remained a member of the European Economic Area, the government’s report said.
- But how do other forecasts stack up? It is something of a mixed bag. Some are wildly more optimistic, while others are more pessimistic than the government.
LONDON – On Monday evening, a leaked government assessment of Brexit’s likely impact on the British economy was published by Buzzfeed.
Brexit, in all its possible forms, will be a significant negative for the UK’s overall GDP, the report showed.
The document prepared by Whitehall officials for the Department of Exiting the European Union looks at the economic impact of Britain’s exit from the EU under various scenarios, including a free trade agreement, single-market access and membership of the European Economic Area, and leaving the EU without any kind of deal.
In all three scenarios, Britain’s economic growth is predicted to be lower over the next 15 years than current expectations. With no deal, growth would be reduced by 8%; with a free trade agreement, it would be 5%; and 2% if the UK remained a member of the European Economic Area.
But how do the government’s official forecasts stack up with those produced by other economic forecasters, research houses and financial institutions?
Many analysts have not produced long term forecasts publicly, choosing instead to focus on the shorter term. However, a handful have, and Business Insider took a look a few forecasts that cover similar time periods to the government’s 15 year horizon.
Major US think-tank, RAND Corporation concluded in a December report that leaving the EU without a deal could cost $US140 billion 10 years after Brexit.
Of all the possible Brexit scenarios, leaving without a deal and operating under World Trade Organisation (WTO) rules would reduce GDP by nearly 5%, or $US140 billion (£105 billion), 10 years after Brexit, compared with EU membership, the report said.
“The analysis clearly shows that the UK will be economically worse off outside of the EU under most trade scenarios,” said Charles Ries, international vice president of RAND and lead author of the report. “The key question for the UK is how much worse off.”
One scenario that could see the UK economy expand compared to staying in the EU, Rand said, would be a trilateral UK-EU-US agreement, or a TTIP-like agreement. This would cause UK GDP to be 2.2% higher ten years after Brexit, RAND said.
A report published by Morgan Stanley’s UK economists Jacob Nell and Melanie Baker on Tuesday to correspond to the Buzzfeed leak, also had a broadly similar assessment of the situation, with the pair arguing that the scale of the potential economic damage Britain would suffer as it leaves the EU will force the country to accept a “soft out” deal in which the UK economy stays largely aligned with Europe’s.
Morgan Stanley’s analysis shows a WTO scenario reducing the size of the economy by 7.5%, compared to the government’s 8% drop; a fall of 6.2% in the FTA scenario, compared to 5%; and 3.8% if the UK remained a member of the European Economic Area, compared to the DExEU forecast of a 2% drop.
“We expect the Brexit talks to drive the UK economy and markets. We see risinguncertainty as the looming March 2019 Brexit date forces a decision on whether the UK is a soft or a hard Out. We expect a last-minute deal to avoid an immediate hard Brexit and allow more time for further trade talks,” Baker and Nell write.
The Mayor of London’s office
Research commissioned by London Mayor Sadiq Khan published earlier in January was a little less pessimistic than the government, saying that UK economic output could be 3% lower by 2030 if Britain leaves the single market and customs union.
Brexit could cost the economy £54 billion and 500,000 jobs by 2030 depending on the deal the UK strikes with the EU, the report, compiled by Cambridge Econometrics argued.
“The analysis concludes that the harder the Brexit we end up with, the bigger the potential impact on jobs, growth and living standards,” Khan said in a statement on the day the report was released.
Dutch lender Rabobank is a little more pessimistic, with a team of analysts led by Hugo Erken saying back in October that “a hard Brexit would cost the UK 18% of GDP growth until 2030 compared to a situation where the UK would continue its EU membership.”
“In absolute terms, this comes down to a cumulative amount of £400bn, which is equal to £11,500 per British worker.”
Rabobank’s forecasts for scenarios in which the UK secures a free trade agreement, and in which Britain remains in the EEA, are also worse than the leaked forecasts from the government.
“The economic damage in our FTA and soft Brexit scenarios is less severe than in our hard Brexit scenario, although it will still cost the UK economy roughly 12.5% and 10% GDP growth until 2030, respectively. This is equal to £9,500 (FTA) and £7,500 (soft) per British labourer over this timeframe,” the bank’s analysts say.
These forecasts are more pessimistic than most, Rabobank says, because the bank uses a model that “enables us to better assess the negative impact of cost-push inflation resulting from imposed trade barriers.”
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