After all the uncertainty in the UK we will have some sort of progress in that we will have an election putting the voters at least briefly in charge. Whether that will solve things is open to debate but let us take a look at what the economic situation will be should the UK start to actually Brexit from the European Union. The NIESR has looked at it and the BBC has put it in dramatic terms.
Boris Johnson’s Brexit deal will leave the UK £70bn worse off than if it had remained in the EU, a study by the National Institute of Economic and Social Research (NIESR) has found.
That is a rather grand statement which fades a little if we read the actual report which starts like this.
The economic outlook is clouded by significant economic and political uncertainty and depends critically on the United Kingdom’s trading relationships after Brexit. Domestic economic weakness is further amplified by slowing global demand.
The latter is somewhere between very little and nothing to do with Brexit. We are in a situation where the 0.3% quarterly GDP growth declared by France this morning looks good in the circumstances.
This brings us to the first problem which is that the NIESR is predicting that sort of growth for the UK.
On the assumption that chronic uncertainty persists but the terms of EU trade remain unchanged, we forecast economic growth of under 1½ per cent in 2019 and 2020, though the forecast is subject to significant uncertainty.
So where is the loss? As it happens they have predicted 1.4% economic growth which is as fast as the economy supposedly can grow these days according to the Bank of England.
We think our economy can only grow at a new, lower speed limit of around one-and-a-half per cent a year. We also currently think actual demand is growing close to this speed limit. This means demand can’t grow faster than at its current pace without causing prices to start rising too quickly.
I am no great fan of this type of analysis but remember we are in the Ivory Tower Twilight Zone here. Now let us factor in the problems the Ivory Towers tell us about business investment.
Prior to the EU referendum, UK business investment growth was growing in line with average growth across the rest of the G7. Since then, it has risen by just 1% in the UK, compared to an average of 12% elsewhere……..DMP Survey data suggest that the level of nominal investment may be between 6%–14% lower than it would have been in the absence of Brexit uncertainties. ( Bank of England August Inflation Report)