The forecast for Brexit is more likely to be gathering storm clouds than sunlit uplands.
That’s the verdict of the UK government, which on Wednesday published its economic assessment of Britain’s exit from the EU. The government concluded that the UK economy will likely be worse off under all Brexit scenarios than it otherwise would be if it remained in the EU.
There are economic positives and negatives to Brexit though. But a devastating chart from the government’s report, shown above, sets out starkly just how small any benefits are likely to be.
On the chart, all the bars above the zero percentage base line show the potential economic benefits to the UK as a percentage change in GDP. They would come from new international trade deals and relaxing regulations post-Brexit. All the bars below zero show the costs to the British economy. The big difference — in favour of costs — is striking.
Many economists argued ahead of Brexit that it would be a disaster for Britain’s economy. These claims were dismissed by supporters of the Leave campaign as “Project Fear” simply trying to scare people to stay in. Indeed, the worst forecasts of what would happen after the vote didn’t materialise.
The government has already been accused of resurrecting Project Fear with its latest forecasts. But, whereas the Treasury’s pre-Brexit forecasts were based on dire expectations for things like trade and consumer consumption, these new numbers are based on very optimistic assumptions.
The economic assessment “considers an ambitious, illustrative scenario for future trade deals with new partners.” It assumes that all the trade deals the EU has struck with other countries simply roll over to the independent UK. And that post-Brexit Britain is able to strike new trade deals with the likes of the United States, Australia, and New Zealand.
If this “ambitious” forecasting model assumes a boon for international trade, why then is the government so downbeat on Brexit’s economic impact? Because the UK already does a lot of trade — with the EU: 49% of the UK’s global trade is with the EU.
Brexit will disrupt this flow, either by a lot or a little, depending on the type of deal we eventually end up with. One of the biggest costs is likely to be so-called “non-tariff barriers” — things like border checks, the transfer of qualifications, and proof of quality and origin documentation.
Meanwhile, the benefits of any new deals negotiated with other countries are likely to be limited, the government believes.
About 80% of UK economic activity is in services — everything from healthcare and hospitality, to banking and the law. Such activities are easier to trade locally. Scheduling a call with a client in Sydney is more difficult for a lawyer than doing so with a client in Antwerp, for example.
Unless the UK can quickly rebalance itself as a major manufacturing power — reversing a decades-long trend — it may struggle to reap opportunities Brexit may offer. That’s before we even take into account the time it would take to negotiate new deals.
The government was keen to stress in Wednesday’s economic assessment that these are not forecasts. Rather, they are models of a range of Brexit outcomes. They don’t take into account possible political changes or any economic developments outside of Brexit. (It does model changes in migration and trade deals, however.)
But these models suggest that even if the UK does find new ways to drive economic growth elsewhere, it will have to work twice as hard to make up the difference left by Brexit. It’s like setting out to swim the English channel with one arm tied behind your back.
The government is keen to downplay the economic implications of Brexit. After all, many people voted for Brexit for reasons that are not economic.
A document published alongside the analysis emphasised that Brexit will allow the UK to take back control “of our borders, money, and laws.” It said the draft deal “takes into account the interests of every side of the debate,” and “Is a deal to bring the country back together.”
Many of those who voted to remain in the EU and are now calling for a second referendum would disagree, particularly given these latest numbers.