The government is supposed to be releasing today a forecast of the economic impact of Brexit on the UK economy. I don't expect it to be materially different to the figures produced by The Treasury before the referendum (HERE) and in the leaked Cross Whitehall briefing from January this year (HERE). The National Institute for Economic and Social Research released their own research (NIESR) a few days ago which pointed to the economy being £100 billion a year smaller than would have been expected had we remained in the EU. This is actually based on the government's Chequers plan.
It will be interesting to see how Theresa May presents the numbers when questioned about them, as she surely will be. Brexiteers will dismiss them as more project fear but it will be far more difficult for the prime minster and members of the cabinet to deny their own Treasury forecasts.
Robert Peston, writing in The Spectator blog (HERE) says the figures themselves will be 'almost irrelevant' because what, "the Treasury has modelled is not the deal actually struck on Sunday by Theresa May, but her Chequers plan" and, as he points out, the EU has rejected the idea of the UK staying in the single market for goods and the dual-tariff customs territory the Facilitated Customs Arrangement. So the figures are going to give a slightly rosier picture than what we should expect.
An extract from the executive summary of the NIESR report:
The main focus of our analysis is on how the government’s proposed Brexit deal is likely to affect the economy, leaving aside the effect it might have on uncertainty. Our assessment is that trade with the EU, especially in services, will be more costly after Brexit. This is likely to have an adverse effect on living standards in the UK.
Our central estimate is that if the government’s proposed Brexit deal is implemented, then GDP in the longer term will be around 4 per cent lower than it would have been had the UK stayed in the EU. This is roughly equivalent to losing the annual output of Wales or the output of the financial services industry in London. This is equivalent to a loss of 3 per cent in GDP per head, worth around £1,000 per annum on average to people in the UK. If the UK were to stay in a customs union with the EU, or if the Irish backstop position was to be invoked, there would still be a hit to GDP per capita of 2 per cent.
In addition to the economic impact of the changes in the UK’s trading relationships brought about by the deal, is the effect it has on uncertainty and confidence. So far at least, the government’s proposed Brexit deal has not gained widespread political support and it is not clear that it will be implemented. Even if the deal is implemented, there will continue to be uncertainty about the precise shape of the future relationship beyond the transition period ending on 31 December 2020. Recent estimates, based on the UK’s performance relative to other similar economies, suggest that Brexit uncertainty has already reduced UK GDP by about 2 per cent relative to what it would have been if the UK had stayed in the EU. This uncertainty is a consequence of the 2016 referendum result.
We are not able to quantify explicitly the effect of the deal on uncertainty and confidence but to the extent that it does not provide clarity about the UK’s future trading relationships then business investment and economic activity in the UK is likely to continue to be lower than it would have been had the UK stayed in the EU, so that the figures in the summary table below may be an underestimate of the economic cost of the government’s proposed deal.
The estimates presented represent our considered view of the economic impact of the government’s proposed Brexit deal, but they are themselves uncertain as there is no historical precedent of a country leaving a major trading block such as the EU.
Note the NIESR say they can't quantify the impact on uncertainty and confidence. Also, they say there is "no historical precedent" - so, although Brexiteers are going to claim it's all project fear again, don't forget nobody really knows what the result of Brexit will be. It might, as they claim, be better than forecast - bit it might also be worse, much worse.
It will be interesting to see how Theresa May presents the numbers when questioned about them, as she surely will be. Brexiteers will dismiss them as more project fear but it will be far more difficult for the prime minster and members of the cabinet to deny their own Treasury forecasts.
Robert Peston, writing in The Spectator blog (HERE) says the figures themselves will be 'almost irrelevant' because what, "the Treasury has modelled is not the deal actually struck on Sunday by Theresa May, but her Chequers plan" and, as he points out, the EU has rejected the idea of the UK staying in the single market for goods and the dual-tariff customs territory the Facilitated Customs Arrangement. So the figures are going to give a slightly rosier picture than what we should expect.
An extract from the executive summary of the NIESR report:
The main focus of our analysis is on how the government’s proposed Brexit deal is likely to affect the economy, leaving aside the effect it might have on uncertainty. Our assessment is that trade with the EU, especially in services, will be more costly after Brexit. This is likely to have an adverse effect on living standards in the UK.
Our central estimate is that if the government’s proposed Brexit deal is implemented, then GDP in the longer term will be around 4 per cent lower than it would have been had the UK stayed in the EU. This is roughly equivalent to losing the annual output of Wales or the output of the financial services industry in London. This is equivalent to a loss of 3 per cent in GDP per head, worth around £1,000 per annum on average to people in the UK. If the UK were to stay in a customs union with the EU, or if the Irish backstop position was to be invoked, there would still be a hit to GDP per capita of 2 per cent.
In addition to the economic impact of the changes in the UK’s trading relationships brought about by the deal, is the effect it has on uncertainty and confidence. So far at least, the government’s proposed Brexit deal has not gained widespread political support and it is not clear that it will be implemented. Even if the deal is implemented, there will continue to be uncertainty about the precise shape of the future relationship beyond the transition period ending on 31 December 2020. Recent estimates, based on the UK’s performance relative to other similar economies, suggest that Brexit uncertainty has already reduced UK GDP by about 2 per cent relative to what it would have been if the UK had stayed in the EU. This uncertainty is a consequence of the 2016 referendum result.
We are not able to quantify explicitly the effect of the deal on uncertainty and confidence but to the extent that it does not provide clarity about the UK’s future trading relationships then business investment and economic activity in the UK is likely to continue to be lower than it would have been had the UK stayed in the EU, so that the figures in the summary table below may be an underestimate of the economic cost of the government’s proposed deal.
The estimates presented represent our considered view of the economic impact of the government’s proposed Brexit deal, but they are themselves uncertain as there is no historical precedent of a country leaving a major trading block such as the EU.
Note the NIESR say they can't quantify the impact on uncertainty and confidence. Also, they say there is "no historical precedent" - so, although Brexiteers are going to claim it's all project fear again, don't forget nobody really knows what the result of Brexit will be. It might, as they claim, be better than forecast - bit it might also be worse, much worse.
