Brexit: a case study…do economic forecasts matter?
The Social Market Foundation (SMF) published on 31 May, 2020 a report entitled: ‘Assessing the economic implications of coronavirus and Brexit’.
It forecasts the impact of the pandemic and of Brexit, the latter under two models: (i) a free trade agreement (FTA) between UK and EU; and (ii) ‘no deal’, with UK operating under World Trade Organisation (WTO) terms. It considers consequent changes to Gross Domestic Product (GDP) and Gross Value Added (GVA) for the UK, its nations and regions; it forecasts changes in trade volumes; and it examines impacts on employment and household incomes. The report also compares the present trade positions of the UK’s nations and regions.
The forecast economic impacts are just about all negative. The question in the title will be addressed at the end.
Acknowledgement: the charts and tables appearing below have all been reproduced from the Social Market Foundation’s report.
Long-term GDP impact on UK under different trading scenarios
The SMF presents evidence that the decision to leave the EU has already had a substantial negative impact on UK economic activity through increased uncertainty, reduced investment and reductions in productivity. It refers to work by the National Institute for Economic and Social Research (NIESR) which calculates that GDP is now around 2.5% smaller than it would have been had the UK decided to stay in the EU.
The graph below collates the range of long-term Brexit forecasts under different trading scenarios. Again, almost all are negative.
The table below considers short and long term effects of Brexit under different trading models. There seems to be an awful lot of that very bad thing termed ‘uncertainty’ over the next few years under either model, in addition to falls in GDP in the short and long run.
Economic impact on nations and regions
Assessing the economic impact of coronavirus alone, using an analysis of industry sectors, the SMF concludes that Wales and Scotland will be least affected of the nations and regions of the UK. This is because as much as a third (31% and 30% or £20.2 billion and £42.4 billion respectively) of their total economic output is reliant on sectors least severely impacted by coronavirus. That’s just fortuitous: we didn’t vote for or against that outcome.
Despite predicting a comparatively mild economic impact from coronavirus, Scotland is shown in the graph below to be impacted by Brexit in a manner that is comparable to SE England, an area that is by contrast predicted to be severely impacted by coronavirus. And despite severe impact from coronavirus, London appears to be less negatively impacted by Brexit that any other part of the UK from this analysis. So Scotland’s (fortuitously) relatively mild economic harm from coronavirus is no help in avoiding the harm of Brexit. That’s avoidable harm: we didn’t vote for that outcome!
Impact on incomes
The SMF recalls evidence that the decision to leave the EU has already had a substantial negative impact on incomes. Research by the Resolution Foundation in 2019 found that household incomes in the UK were £1,500 a year lower than they were expected to be before the EU referendum.
The table below provides forecasts of the longer term outlook for weekly income per capita under different trading models. All are negative.
Trade positions – the status quo
The series of graphs which follow indicate Scotland’s trade position relative to the other nations and regions of the UK. It shows a position that Scottish (and other UK) businesses have built over time and which is now subject to change after Brexit in return for national economic benefits which, based on this SMF report, are illusory.
Trade – the size of the loss?
The table below estimates the effects of different scenarios on the scale of trade volumes between the UK and EU over the long term. Recall from the previous section the relatively strong position of Scotland relative to many of the nations and regions of the UK in terms of exports to the EU.
Trade – the size of the prize?
The chart below forecasts the long-run change in GVA across the nations and regions as a consequence of the different trade models. All indicate substantial negative effects: London is least negatively affected under either model. If this forecast comes to pass, it is hardly conducive to reducing economic disparities across an already unequal UK.
Lastly in terms of economic information, the SMF provides this startling revelation: “the government’s long-term analysis found that even on optimistic assumptions about the UK’s ability to conclude new trade agreements (with non-EU countries) in addition to rolling over all existing agreements, the positive impact on GDP after 15 years would only be about 0.1-0.2%.”
This is not new: there have been many claiming since 2016 that the economic impact of Brexit will be damaging. That it doesn’t seem to matter to a majority in certain nations of the UK is noteworthy: the contrast with 2014 and the traction that negative economic forecasts for an independent Scotland seemed (anecdotally) to have with voters then is also noteworthy.
Do more people in England have a healthy scepticism of economic forecasts? The possibility of having economic certitude about the future was often simply shrugged off by pro-Brexit politicians and allied media commentators in 2016. Future economic certitude was held up as an absolute requirement by ‘better together’ proponents in 2014 and seemed (again anecdotally) to resonate more with the public here.
Or perhaps it’s because the economic ‘ammunition’ associated with the pro-Brexit case had access to the ‘weapons’ to fire it. The pro-Brexit side had ‘big guns’ in the media in support: at worst it enjoyed a neutral stance by the aggregating/amplifying mass media outlets such as the BBC. The pro-independence economic case will not have this in its favour.
Or perhaps a higher proportion of people in England voted ‘leave’, and still support Brexit today, for more fundamental, in principle reasons and regardless of economic forecasts – as they see it, ‘regaining sovereignty’.
As many supporters of independence argue that the ‘economy’ will be the crucial factor in case making in the next campaign, these Brexit factors are worthy of careful consideration. When campaigning next time, will we dare challenge the notion that the economy – and economic forecasting – is at the core of the case for or against dissolving the Union. Should we seek to shift the battle away from the ‘economic’ field where the ‘big guns’ will be firing from the other side?