Impact of Brexit on the UK economy grossly exaggerated

The next two installments of the IEA’s no-deal Brexit ‘Fear-Checkers’ - which help to separate theoretical risks from reality - deal with the initial economic impact of the vote to leave the EU, and the claim that Brexit could turn back the clock on women's rights.

The first briefing challenges the methodologies used by UBS, the Centre for Economic Reform and others to reach the estimation that GDP in the UK has already taken a 2.1 per cent hit. The briefing argues that this figure is pessimistic and challenges the assumption that the impact can only become more negative.

Key points: 

•   The ‘doppelganger’ methodology used to reach 2.1 per cent is unreliable, especially over short periods.

•    The UK economy has grown more slowly due to the additional inflation prompted by sterling’s fall and the heightened uncertainty – but 2.1 per cent is too pessimistic.

•   Sterling was already over-valued and UK consumer spending was already looking stretched – the UK would probably have slipped down the growth league table regardless of Brexit.

•    The level of GDP is more likely to be around 1 per cent lower than it would otherwise have been – particularly given our strengthening labour market.

•   It is wrong to assume the effect on the economy will get worse – the UK has not left the EU yet so the benefits of Brexit cannot be felt, as well as the costs.

•    Even the initial hit may be partially reversed, especially if investment snaps back once uncertainty clears.

The second briefing deals with the claims that, freed from the constraints of the EU, UK politicians will weaken women’s rights legislation and workplace protections, and that women will disproportionately bear the burden of any Brexit-related economic downturn.

Key points: 

•   Much of the legislation on women’s rights created by the EU have been replicated in domestic legislation.

•    Key UK provisions predate the existence of EU instruments altogether such as the first Equal Pay Act (1970) and the Abortion Act (1967).

•   There are also many areas where current UK protections exceed statutory EU requirements such as Britain’s statutory 52 weeks maternity leave (39 of which are paid) versus the 14 weeks guaranteed by EU law.

•   The claim that women will be hit harder if there is an economic downturn hinges on a chain of assumptions – one, that the economy will be adversely affected (as dealt with in the IEA’s economy briefing); two, that any downturn would necessitate austerity measures; three, that austerity affects women more than men.

Reacting to the project-fear stories concerning the effects of Brexit on the UK economy, Julian Jessop, Chief Economist and Head of the Brexit Unit at the Institute of Economic Affairs said:

“Some reports have suggested that Brexit has already shrunk the economy by 2.1%, even before the UK has actually left. However, these estimates are based on questionable modelling and assumptions about what would have happened otherwise.essential that the UK government keeps its Brexit options open and prepares seriously for the possibility of ‘no deal’.

“The economy has probably grown more slowly due to the additional inflation and uncertainty. But an initial Brexit hit of around 1% looks more plausible. More importantly, this weakness could still be temporary, rather than a sign of worse to come.”
 

Notes to editors: