The proposed impact of Brexit on the UK economy

To support Parliament in its deliberations both HM Treasury (HMT) and the Bank of England (BoE) published additional material to set out the potential impacts on the UK economy.

To support Parliament in its deliberations both HM Treasury (HMT) and the Bank of England (BoE) published additional material to set out the potential impacts on the UK economy.

The HMT report focuses on the long-term potential impacts on the UK economy whilst the BoE report (both published on the 28 November 2018) focuses on the short-term impact to the UK economy; with the emphasis on financial stability.

Headline findings

Both reports conclude (in both the short and long term) that the impacts on growth would be significant if the UK left the EU under a no deal scenario. So what did they conclude?

  • HMT concludes that the UK economy could be up to 7.7% smaller over the long term, compared to the UK’s current arrangements. The BoE calculates that no-deal arrangements could trim 7% to 10% from the UK economy between 2019 and 2020.
  • The FPC (the Financial Policy Committee of the BoE) has made clear that the 2018 financial system stress tests show the UK banking system is strong enough to serve the needs of UK households and businesses in the event of a no-deal Brexit.
  • The HMT is an assessment of the trade, migration and regulatory effects across four core scenarios: the July White Paper “The Future Relationship between the UK and the European Union”, EEA membership, Free Trade Arrangements, and no deal arrangements. All these scenarios implied the UK’s long-run growth would be lower compared to current arrangements. It also concluded that the policy position set out by the government in its White Paper would have the least impact on long-run UK growth, with average annual growth 0.6% lower.
  • The HMT work also included some regional level modelling across the policy scenarios analysed. It concluded that long run GVA in Yorkshire and Humber could be up to 8.2% lower in a no-deal scenario and up to 3.2% lower in the policy position set in the July 2018 White Paper.