Impact of Brexit on the UK economy grossly exaggerated
14 September 2018
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IEA releases next two fear-checkers
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.”
“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:
For media enquiries please contact Nerissa Chesterfield, Head of Communications: nchesterfield@iea.org.uk 020 7799 8920 or 07791 390 268
The IEA’s no-deal Fear-Checkers will be released throughout September, written by various authors who had different stances on the 2016 European Union Referendum.
The IEA does not have a single corporate view on Brexit and these briefings are not intended to promote one model over another.
Download the IEA’s Fear-Checker briefing ‘GDP already hit 2.1% – and it will only get worse‘ written by Julian Jessop, Chief Economist and Head of the Brexit Unit.
Download the IEA’s Fear-Checker briefing ‘Brexit is sexist’ written by Madeline Grant, Editorial Manager at the IEA.
Already published is the IEA’s Fear-Checker briefings: ‘We will run out of medicines’, Mobile phone bills will soar’, and ‘Planes won’t fly’,
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
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.”
“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:
For media enquiries please contact Nerissa Chesterfield, Head of Communications: nchesterfield@iea.org.uk 020 7799 8920 or 07791 390 268
The IEA’s no-deal Fear-Checkers will be released throughout September, written by various authors who had different stances on the 2016 European Union Referendum.
The IEA does not have a single corporate view on Brexit and these briefings are not intended to promote one model over another.
Download the IEA’s Fear-Checker briefing ‘GDP already hit 2.1% – and it will only get worse‘ written by Julian Jessop, Chief Economist and Head of the Brexit Unit.
Download the IEA’s Fear-Checker briefing ‘Brexit is sexist’ written by Madeline Grant, Editorial Manager at the IEA.
Already published is the IEA’s Fear-Checker briefings: ‘We will run out of medicines’, Mobile phone bills will soar’, and ‘Planes won’t fly’,
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
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