The economic effects of the UK government's proposed Brexit deal

Abstract

The focus of our analysis is on how the UK government's proposed Brexit deal is likely to affect the economy. First, we assess how trade, migration, foreign direct investment, productivity and contributions to the EU budget might change by reviewing current proposals against historical evidence. Second, we use the National Institute Global Econometric Model (NiGEM) to analyse the macroeconomic effects. Our assessment is that trade with the EU, especially in services, would be more costly after Brexit. This would be likely to have adverse effects 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 3% lower per head than it would have been had the UK stayed in the EU. 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%. These estimates 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.

Key sectors in input–output production networks: An application to Brexit

“…The Brexit debate has been enriched by numerous studies of academics and governing bodies that attempt to quantify the economic impacts of Brexit on the UK, the EU and the rest of the world (see Gasiorek, Serwicka, & Smith, ; Hantzsche, Kara, & Young, ; Minford, and the special issue edited by McCann, , among others). In general, this literature focused on the trade effects of Brexit, noting that the UK decision to leave the EU will have a significant negative impact on international trade.…”

Ireland and Brexit: modelling the impact of deal and no-deal scenarios

“…By 2020, deviations in the level of real UK GDP range from -1.7 per cent under a Norway-like (EEA) deal to -5.6 per cent in the case of no deal (IMF, 2016). A more recent NIESR study, accounting for the proposed terms of the Withdrawal Agreement, sits within this range at -2.2 per cent by 2020, following a two-year transition period (Hantzsche et al, 2018).…”

“…A strong consensus has also emerged regarding the negative effect the UK's withdrawal from the EU will have on its economy in the longer term (generally considered to be after ten to 15 years) (HM Treasury, 2016;HM Government, 2018;IMF, 2018b;Kierzenkowski et al, 2016;Hantzsche et al, 2018;Vandenbussche et al, 2019). Table 1 shows the estimated long-run impacts range from -0.1 per cent under a 'liberal Customs Union' (Oxford Economics, 2016) to -10.5 per cent under a 'disorderly' no-deal scenario (Bank of England, 2018).…”

“…While the Withdrawal Agreement does not fully specify the future relationship between the UK and EU, it is consistent with a high degree of alignment between the UK and EU. Hantzsche et al (2018) interpret the Withdrawal Agreement as including no tariffs, fees or quantitative restrictions on goods trade, and deep but not full regulatory alignment thereby leading to more trade frictions than EU membership. While there are no specific provisions for services in the Withdrawal Agreement, the Political Declaration looks for the EU and UK to conclude 'ambitious, comprehensive and balanced arrangements on trade in services…'.…”

“…While there are no specific provisions for services in the Withdrawal Agreement, the Political Declaration looks for the EU and UK to conclude 'ambitious, comprehensive and balanced arrangements on trade in services…'. Hantzsche et al (2018), interpret this as implying more frictions than EU membership. It is also possible that Article 50 will be extended by some time to ensure that a deal can be agreed between the UK and EU that can be ratified in the UK parliament.…”