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Brexit: economy may avoid hit until 2030

The economic impact of Brexit is some way off, say Institute for Fiscal Studies and Oxford Economics, but five-year prospects remain tough.

 
Brexit: economy may avoid hit until 2030

The negative impact from Brexit probably won’t be felt until 2030, but don't be fooled into thinking the next few years will be easy for the UK, two leading economists have warned.

The UK has proved surprisingly resilient since the EU referendum with growth of 0.6% in the last quarter beating forecasts and - setting aside the political upheavals of the past eight months - a macro-economic picture that Andrew Goodwin of Oxford Economics called 'pretty uneventful’.

‘I cannot remember a year when the forecast [for UK economic growth] was so stable – growth at 2% – and all economists were aligned,’ said Goodwin, co-author of a Green Budget report with the Institute for Fiscal Studies (IFS).

Nevertheless, he said the next five years looked set to be ‘gloomy’ although he clarified it might not be Brexit causing problems up to 2021. 

‘Brexit is not that much of an issue if the government is successful in terms of a transition agreement and free trade agreement,’ he said.

‘Also, we think the potential negative effects of Brexit will play out beyond 2021 – the next five years is not enough time [for possible problems] to play out.

However, there are two factors that the IFS and Oxford Economics have identified as damaging for the UK economy.

The first is labour supply which will be stunted by less immigration and an equalisation in the state pension age for both men and women in 2020.

A reduction in the number of foreign workers in the UK was not necessarily a ‘factor of Brexit’, said Goodwin, who explained that a gradual recovery in the EU might mean fewer people moving in search of jobs if unemployment fell across the Continent.

Secondly, the UK workforce was currently enjoying a boost from the gradual raising of women's state pension age, which meant more were staying in work for longer. However, when women reached parity with men with a state pension age of 66 in three years' time, that effect would start to disappear and act as a ‘substantial drag’ on the economy, said Goodwin.

The quality of the UK workforce had also peaked, he said. University admissions reached a high in 2007 and the country was now ‘over the hump’ of highly skilled workers coming into the labour market.

‘Now we are over the hump of university admissions, they will provide less to growth going forward,’ Goodwin said.

‘Where we do see Brexit issues is moving further out to 2030,’ said Goodwin.

Concerns will materialise if Britain fails to secure free trade agreements or if ‘non-tariff barriers’ are imposed. This would mean UK companies would start off compliant with European rules but gradually, as regulations diverged between the EU and Britain, they would encounter more difficulties in cross-border business.

Goodwin said non-tariff barriers would make it ‘harder to export’ to the EU and that he was ‘downbeat’ about Britain’s ability to conduct ‘frictionless trade’ with Europe.

He claimed that the road Britain was currently on, where it plans to use reacquired powers to limit immigration for example, was ‘economically damaging’.

‘The only thing that could be worse [than the route currently being taken by the government] is no agreement,’ said Goodwin. ‘If the government takes a more liberal approach then the outlook will be better.’

25 comments so far. Why not have your say?

Martyn

Feb 07, 2017 at 16:58

"as regulations diverged between the EU and Britain, they would encounter more difficulties in cross-border business." No - if there is sufficient margin you would ensure your product complies with your target market!

"Now we are over the hump of university admissions, they will provide less to growth going forward," - a large number will not be required in the City so more will go into industry!

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jeffian

Feb 08, 2017 at 15:06

What is it with these economists? They got it totally wrong on Brexit and now they're trying to fudge the issue by playing the "You just wait..." card. A bit of humility (and silence) would be no bad thing.

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xxxxx

Feb 08, 2017 at 17:22

Couldn't agree with you more jeffian. Those same economists couldn't even get it right in the 6 months after the referendum and yet we are now expected to take them seriously on what things will be like in 2030. One thing seems certain - they will be wrong.

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CHMM

Feb 08, 2017 at 18:01

For economics to work, you have to assume people will behave in a rational way. With (non-mortgage) consumer credit at such elevated levels, and services having been a significant pillar of support for the economy, (and now that interest rates have bottomed) it is clear that they are not.

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Gareth80

Feb 08, 2017 at 18:39

People are unpredictable - economists should be far more tentative with their forecasts than what they are!

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george renshaw

Feb 08, 2017 at 18:48

If you are stupid enough to vote for Brexit then you are stupid enough to max out your credit card or your payday loan - and that is exactly what is happening up and down the country, fuelling the so called Brexit boom.

Can't people understand that, if Brexit does ever happen, it won't be for another two years yet. That's why economists are making forecasts. That means talking about the future.

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Roger Savage

Feb 08, 2017 at 18:54

As with share tipsters, the 'monkey with a pin' approach usually outperforms their predictions. In other words, they just make it up as they go along.

On 24th May 2016, the IFS warned that so-called austerity would last for two more years. In November, they warned that Brexit would represent the biggest squeeze on pay for 70 years and that every household would lose £1250 a year because of Brexit.

Have I got a superb memory? Not particularly. I just Googled 'brexit+ifs' and found the above - just as any competent journalist would do if they were weighing up how much credence they should give to an article that contains quotes from an organisation that does indeed seem to make it up as they go along.

I like Citywire but, sadly, like most news outlets these days, they just publish press releases rather than demonstrate any journalistic skill.

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george renshaw

Feb 08, 2017 at 18:58

But Roger, austerity is in full flood (see NHS and local govt services). As for Brexit, it hasn't happened yet! All we've had is a referendum!

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Jon

Feb 08, 2017 at 19:15

George - government spending is still well ahead in real terms compared with before the financial crisis. So the cuts are not "austerity" but a correction to Brown's irresponsible spending spree - just look at the graphs on ONS.

We are spending MORE in real terms on the NHS each year, so, again, this is NOT austerity - just that people are using hospitals far more.

I voted for Brexit as I saw it as a way to correct the huge trade deficit - the UK is spending far more than it earns, which you class as stupid when it is done by individuals. I pay my credit card off each month, and I am not stupid.

So perhaps you were stupid to post the comment above :-)

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CHMM

Feb 08, 2017 at 19:18

Good point George Renshaw, the correlation is striking.

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CHMM

Feb 08, 2017 at 19:21

If Brexit works in correcting the trade deficit (ie that we import less and export more) it would be a miracle of several magnitudes. All Brexit does is pose a significant risk to trade with our largest, by far, export market. Hmmm

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Truth Searcher 2

Feb 08, 2017 at 19:38

It seems the fight is between those who are willing to give up all control of their lives so long as they get their pay unintrrupted and those that prefer to keep their freedom and democracy regardless of cost. I'm on the freedom and democracy side.

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CHMM

Feb 08, 2017 at 19:42

Truth Searcher, the decision you have to make next is how much you are willing to pay for the hope of freedom and democracy, assuming that you are willing to pay for it, If you are not willing to pay for it, you made the wrong choice.

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jeffian

Feb 08, 2017 at 19:58

Well I'm "stupid" too. I think that sort of comment reminds us how out of touch we are with each other. People voted for all sorts of reasons and it can't just be characterised as "racism" or "bigotry". I'm with Truth Searcher 2; whilst remaining on the friendliest of terms with Europe and being as open as we wish to be, I want my lawmakers to be accountable to me and I want my vote to count for something and have some small chance of influencing the things that affect my life. For me, it was about sovereignty, democracy and accountability. Some things are more important than money so, to take CHMM's question, yes, I'm willing to "pay" for it. But of course it won't be like that because when the economists talk about the "cost" they mean some theoretical loss of GDP compared to what they calculate we would have made if we stayed within the EU. Well, to come full circle, we all know how likely that is to be right, don't we?!

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jeffian

Feb 08, 2017 at 20:22

A few more points -

EU may be our biggest market but it's a moribund market. Italy's economy is 7% smaller than when it joined the euro; the eastern europeans are too poor to buy our goods and services; the French are wedded to high regulation and stifling labour laws and Greece........

Our biggest, maybe, but fast-declining market. The percentage of our trade to EU has fallen dramatically in the last decade and is likely to continue to do so (comparatively) while our trade with the rest of the world increases.

Unless Germany bites the bullet and accepts that EU debt has to be 'mutualised' (i.e. the Germans take on Greek debt) the Euro MUST fail. The IMF has grasped the point. However often you kick that can down the road, the outcome is inevitable. Besides financial disintegration, political disintegration threatens following the Dutch, French and even German elections so the dangers of staying 'in' are not much less than getting out.

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Jon

Feb 08, 2017 at 20:33

CHMM - If we stop trading with the EU then our trade deficit would vanish !! (our defict with the EU is higher than our overall deficit). :-)

But, more seriously the falling pound has already improved the underlying trade position, although it went back for a month whilst UK consumers had a spree buying chinese gadgets before Xmas, and we had a lump import of transport infrastructure related goods.

And, of course we will still trade with the EU. If our exporters have to pay a tariff, then EU imports will also bear a tariff, which we can use to refund our exporters and still make a profit until the deficit is eradicated. And EU imports will be so expensive our home market will start to replace them.

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Jon

Feb 08, 2017 at 20:34

CHMM - sorry - I forgot the Hmmm

Hmmm

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bryan young

Feb 09, 2017 at 09:30

i hear that all these so called expert economists are now blaming the financial crisis of 2007 on brexit !!!!!!!!!!!!!!!!!!!!!!!!!!

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CHMM

Feb 09, 2017 at 10:03

Jon, if our trade with the EU becomes tariffed, volumes will fall, perhaps significantly. We will then have much larger problems to face, even if the deficit has shrunk.

As far as stering is concerned, we are not Japan, or South Korea, or any other major exporting nation. UK Plc does not benefit overall from a weaker pound.

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george renshaw

Feb 09, 2017 at 10:42

Had no desire to be rude to anyone on here and apologise if that was the impression.

However, at the risk of adding fuel to the flames: why do people think there was such a clear correlation between educational level attained and liklihood of voting Remain?

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CHMM

Feb 09, 2017 at 10:45

The recent BBC survey and plenty of earlier reports have shown unambiguously that is the case. Sad but true.

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William Phillips

Feb 09, 2017 at 14:31

By 2030 we shall be so disrupted by the rise of China and the robots that the continued existence of the EU, whether we are 'out' or 'halfway in' (as from 1992) will be an affair of the utmost insignificance. I did not bother to vote in the referendum. The fate of ramshackle political constructs, designed to tackle the day before yesterday's problems (e.g. how to stop the French and Germans fighting each other), is of little moment.

I still await vindication of the consensus verdicts of hundreds of economists that Mrs Thatcher's 'dry' policies in 1981 would lead to disaster. Or that being ejected from the EMS would be Sterling-geddon. Or that the Bretton Woods settlement would render a welfare state unaffordable. Or that going off the gold standard in 1931 would destroy the City as a financial centre. Or that doing away with the Corn Laws... well, you get the general idea.

Why are these self-important witch doctors not redeployed usefully, say as toilet cleaners?

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William Phillips

Feb 09, 2017 at 14:32

"why do people think there was such a clear correlation between educational level attained and liklihood of voting Remain?"

Because a little learning is a dangerous thing?

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Jon

Feb 09, 2017 at 14:54

So many academics were afraid that their EU funding would go. Many economists work for organisations that received EU grants. And many ex-university people thought that Brexit means that they will not be able to travel and work in Europe. Also, with every educational institution becoming a "university" there are far more younger "graduates" in the population who do not understand life outside the EU. All self interest without the realisation that the UK will undoubtedly fund more research etc., except that it will be in the interests of the UK rather than ticking the boxes of the EU - and with a lot less red tape to qualify. Older well-educated people like me remember that life existed before we joined the EU and that people worked in different countries then, and that we had joint research..

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SJB

Feb 12, 2017 at 15:50

UK business not keeping up with EU regulations is laughable. Martyn's comment is correct, except that EU car manufacturers had to cheat in order to comply with US regulations. Whether it be car emissions, financial regulation or animal traceability, the EU is way behind in both implementation and adherence. The UK has the ability to create regulations that slow and divisive organisations, like the EU, will struggle to comply with. However, aligned with progressive nations, the UK can be in the vanguard of free trade and watch the EU struggle to catch up.

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