Brexit economic hit will kick in after 2020 general election, Cambridge study finds

Researchers warned that the hit would kick in after 2020

Jon Stone
Political Correspondent
Thursday 05 January 2017 17:29
Comments
City workers cross London Bridge as they commute to work
City workers cross London Bridge as they commute to work

The hit to the British economy from leaving the EU will likely start to bite after the next general election in 2020, a Cambridge University study has warned.

Economists at the university’s Centre of Business Research modelled the economic effects from the referendum and found that any pain from the “large shock to the UK economy” would have to be dealt with by whoever won the next election.

Uncertainty caused by the referendum result will initially be offset in the economic figures by a lower exchange rate making British exports more attractive, they said. However once the UK actually leaves the bloc the loss of trade, migration inflows and job creation will bite, with GDP being up to 5 per cent lower by 2025.

The researchers toned down previous Treasury forecasts, which they indicated were unduly pessimistic – and said their modelling was “pessimistic but illustrative of what could happen”.

In the study the researchers assumed that Theresa May would want to control immigration, as she has pledged, and thus likely leave the single market and jurisdiction of the European Court of Justice.

There was similar pessimistic news for other economic indicators. The model found that real wages would likely be roughly flat until 2025 – unchanged from 2004 levels. Though lower immigration would likely improve the wage bargaining position of workers, the economists found, higher inflation as a result of the tanked Pound would undermine any gains. Unemployment is also expected to begin to rise again from 2018.

“The overall impact in the baseline Brexit scenario is that GDP is largely unchanged up to 2020 as the lower exchange and interest rates offset the negative impact of uncertainty,” the economists concluded.

“After 2020 the loss of trade results in GDP ending in 2025 some 2 per cent below the pre-referendum forecast. Part of this reduction in GDP comes from lower migration and fewer jobs.

“As a result there is less of a fall in per capita GDP which ends up in 2025 at only 0.3% below the pre-referendum forecast. The severe Brexit scenario has a greater loss, at 5 per cent of GDP in 2025.

“This is close to the Treasury’s 7 per cent for 2030. Once again the fall in per capita GDP by 2025 is less in this scenario at 3 per cent.”

The researchers say it is likely Britain will attain some kind of free trade agreement with the EU, though "political differences" may mean that it takes some time.

The study's release comes as a former Downing Street trade envoy warns that Whitehall does not have the skills to negotiate a good deal with the EU.

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