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Boris Johnson's Brexit deal to wipe £70bn off economy by 2029

Tom Belger
·Finance and policy reporter
Britain's Prime Minister Boris Johnson leaves 10 Downing Street on his way to the Houses of Parliament in London, Tuesday, Oct. 29, 2019. Britain appeared on course Tuesday for an early general election that could break the country's political deadlock over Brexit, after the main opposition Labour Party said it would agree to the government's request to send voters to the polls in December. (AP Photo/Frank Augstein)
Britain's prime minister Boris Johnson leaves 10 Downing Street on his way to the Houses of Parliament in London. Photo: Frank Augstein/AP

Boris Johnson’s planned Brexit deal would wipe £70bn ($90.1bn) off Britain’s long-term economic growth compared to staying in the EU, according to a leading think tank.

The UK would miss out on the equivalent of £1,100 a head every year under the kind of looser trading relationship with the EU envisaged by the UK prime minister, a study published on Wednesday suggests.

“We don’t expect there to be a ‘deal dividend’ at all,” said the National Institute of Economic and Social Research (NIESR)’s principal economist Arno Hantzsche at a press conference attended by Yahoo Finance UK.

The government’s plan to leave both the EU’s single market and customs union would lead to significant barriers to trade with the bloc, currently Britain’s biggest trading partner.

READ MORE: UK house prices keep rising despite Brexit turmoil

These new barriers would shave 3.5% off GDP every year in the long run, according to the NIESR, leaving every single area of the UK worse-off versus continued EU membership.

The figures suggest the north-east Scotland and Kent would be hit hardest, while poorer regions reliant on high public spending could suffer from lower tax receipts and budget cuts.

The NIESR said the loss of EU trade would more than outweigh any benefits from lower political uncertainty, reduced or scrapped contributions to EU budgets and striking new trade deals with major English-speaking economies.

He said an end to economic uncertainty, which the government hopes will result from parliament approving a deal, could lift GDP by 1-2% by encouraging pent-up investment and reducing no-deal Brexit fears.

But he said Johnson’s proposed deal, unlike his predecessor Theresa May’s agreement and backstop plans with Brussels, “eliminates the possibility of a closer relationship,” leading to lower economic output than likely under May’s proposals.

READ MORE: UK set for election as Labour says it will back Johnson plans

Figures compiled the NIESR suggest Johnson’s proposals would drastically reshape decades of growing trade ties between Britain and the EU.

They forecast British trade in goods with European partners will be 40% lower than if Britain remained in the bloc, and an even steeper 60% drop in EU trade for the UK’s dominant services sector.

Foreign direct investment is also expected to be 20% lower, though bilateral trade in goods with English-speaking countries like the US or Australia could grow by 25% if Britain struck new trade deals, according to the NIESR.

The study suggests the economy is already 2.5% smaller than it would have been without Brexit, with stifling uncertainty, unprecedented stockpiling and contingency planning for new trade barriers all denting business growth.

Hantzsche added: “We think Brexit has already had a lasting impact on the economy. We think there’s a case for a cut in bank rates, possibly as early as next week.”

READ MORE: How much less women earn than men throughout their lifetimes

But the NIESR does not expect a Bank of England rate cut until March 2020, particularly after Labour signalled it would back plans for a UK general election in December.

It also released its latest GDP forecasts for the next few years, predicting 2018’s annual growth rate of 1.4% will continue in both 2019 and 2020.

GDP hit from Boris Johnson's Brexit deal
GDP hit from Boris Johnson's Brexit deal

This marks an upward revision to its previous forecasts. Hantzsche said it reflected increased Brexit stockpiling this year and next, higher government spending and continued real wage growth.

The institute’s forecasts assume that chronic uncertainty will persist in the near-term and Britain’s close trade links with the EU will continue as part of a transition deal.

But Hantzsche warned political uncertainty “may well be a new normal,” and could continue to be a drag on economic growth as Britain navigates a new relationship with the EU before and after Brexit.

READ MORE: How no-deal Brexit could wipe out ‘generation’ of farmers and hit prices