'Britannia rules the waves' ?
OVOODOCORVO
Ever get that sinking feeling?
UK worse off under all Brexit scenarios
UK government analysis concluded that under no-deal
scenario, GDP growth will be 9.3 percentage points lower after 15 years
compared to remaining.
By CHARLIE
COOPER, BJARKE SMITH-MEYER AND SILVIA SCIORILLI BORRELLI 11/28/18, 1:09 PM CET Updated 11/29/18, 9:13 AM CET
LONDON — Governments don’t usually say their policies will
leave the economy worse off, but these are not normal times for Theresa May.
As the U.K. prime minister attempts to sell her Brexit deal
agreed Sunday in Brussels to MPs at home, her government produced analysis
showing all Brexit scenarios would hurt the economy but the impact of leaving
under May’s plans would be significantly less than exiting with no agreement at
all.
The government analysis was echoed later in the day by a
separate report from the Bank of England, which warned economic output in the
U.K. could drop by as much as 8 percent if Britain drops out of the EU without
a deal in place, compared to expectations had the U.K. stayed in. That compares
to a 6.25 percent drop during the 2008 financial crisis.
May defended her government at her weekly
question-and-answer session in the House of Commons, saying that her deal is
the best available to protect the economy and “honor” the 2016 EU referendum
result. She was met with widespread criticism, both from the Labour opposition,
who dubbed her plan the “worst of all worlds,” and from Brexiteers, who
questioned the validity of the reports’ assumptions.
Brexit-supporting MPs were also quick to dismiss the Bank’s
analysis, recalling its (so far incorrect) pre-referendum warning that a Leave
vote could result in a recession — a prediction that was linked by Brexiteers
to an anti-Brexit campaign by the David Cameron government that they branded
“Project Fear.”
Jacob Rees-Mogg, chair of the Euroskeptic European Research
Group of backbench Conservative MPs, said BoE Governor Mark Carney’s new
warning about the no-deal Brexit scenario had “turned Project Fear into Project
Hysteria.”
Likewise, the opposition Labour Party was quick to attack
the government. John McDonnell, Labour’s shadow chancellor, said: “The Bank has
confirmed what other independent reports this week have been telling us: A
no-deal Brexit could be even worse than the financial crisis of 10 years ago,
and the country would be much worse under Theresa May’s deal. Instead of
plowing on with this discredited deal the government should set new priorities
that would protect jobs and the economy.”
However, MPs supportive of a second referendum said the
Bank’s analysis strengthens the case for a fresh vote.
Labour MP Wes Streeting, a member of the House of Commons
Treasury committee, said: “No responsible government — on either side of the
negotiations — will allow no deal. Time for the [prime minister] to drop the
pretense and put her Brexit deal to the country with an option to remain [in
the EU].”
The government’s 83-page document sets out a range of
scenarios and makes a number of assumptions, reflecting the uncertain nature of
the U.K.’s future relationship with the EU and post-Brexit immigration policy.
It makes comparisons with projected GDP growth if Brexit does not go ahead.
In all the versions of Brexit considered by the government,
the report concludes the U.K economy would continue to grow. Brexit’s effect is
predicted to be a check on growth, rather than leading to a downturn. The
biggest projected hit would happen under a no-deal Brexit, where GDP growth is
predicted to be 9.3 percentage points lower over 15 years compared with a
continuation of the status quo, again if migration from the EEA is reduced to
net zero.
In their separate report, the Bank of England also found
that a no-deal Brexit scenario could witness an increase in unemployment of up
to 7.5 percent, with inflation potentially rising up to 6.5 percent. However,
in stress tests published at the same time, the Bank concluded British banks
are strong enough to withstand a global recession or disorderly Brexit.
“If you look at this purely from an economic point of view,
there will be a cost from leaving the European Union because there will be
impediments to our trade” — Philip Hammond
However, May is unlikely to achieve a full Chequers-style
settlement in the negotiations over the U.K.’s future relationship with the
bloc, and analysts also set out predictions for an alternative scenario falling
halfway between the Chequers prediction and one based on a Canada-style
free-trade agreement.
Impact of migration
The government predicts that May’s proposals for the
post-Brexit relationship with the EU, as outlined in the July white paper —
better known as the Chequers plan, after the prime minister’s country residence
— would leave U.K. growth 2.5 points lower, if migration from the European
Economic Area is reduced to net zero.
If EEA migration remains unchanged, the cut in growth would
be just 0.6 points under this scenario, the analysis predicts.
Under this scenario, arguably a more likely endpoint for
negotiations, U.K. growth would be 2.1 points lower if there are no changes to
EEA migration, but 3.9 points lower if EEA migration is reduced to net zero.
Hammond acknowledged that May’s Brexit deal would entail a
cost to the economy | Ben Stansall/AFP via Getty Images
May has pledged to end freedom of movement from the EEA, so
it is likely migration numbers will fall.
‘Impediments to our trade’
Speaking on the BBC’s Today program this morning, Chancellor
Philip Hammond acknowledged that May’s Brexit deal would entail a cost to the
economy compared with staying in the EU.
“If you look at this purely from an economic point of view,
there will be a cost from leaving the European Union because there will be
impediments to our trade,” Hammond said. He said the prime minister’s deal
“minimizes those costs.”
May, speaking in the House of Commons following the
publication of the document, said it shows the U.K. is “a strong economy that
will continue to grow.”
The document’s projections for the 15 years immediately after
Brexit assume that the U.K. will have replicated all the trade deals with third
countries via the EU, and will have negotiated its own trade agreements with 17
countries, including the U.S., Australia, New Zealand, China, India, the
Mercosur countries and the Gulf Cooperation Council countries.
However, the overall benefit of new trade deals is estimated
to be a maximum of 0.2 points extra on GDP growth.
Regionally, the northeast of England would be the hardest
hit economically in a no-deal or Canada-style free-trade agreement scenario,
according to the document. Under no deal, the region’s growth would be more
than 10 points lower than it would have been inside the EU.
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