UK, Bank of England lay out economic costs of Brexit scenarios
London: The British government and the Bank of England said the United Kingdom risks serious economic damage in the case of a messy break-up with the European Union, an assessment that Prime Minister Theresa May hopes will persuade a majority of lawmakers to back her plan for Brexit, Efe news reports.
In twin analyses published Wednesday, the government and the central bank argued the economy would face widespread disruption from an abrupt divorce from the EU in March if talks conclude without agreement over the terms of the UK’s exit. The bank’s analysis found such a crash-out could leave Britain’s economy 10 per cent smaller just four years later than it would have been without Brexit.
May, who governs without an outright majority, is hoping such stark warnings will prod wavering lawmakers to get behind her controversial withdrawal plan when it comes before Parliament on December 11.
Her proposals face opposition from both pro- and anti-Brexit members of Parliament, making victory far from certain. She is currently touring the country to drum up support from the public and business leaders.
The analyses also show the UK would probably be better off economically if it scrapped Brexit and remained an EU member, giving ammunition to anti-Brexit voices pushing for a second referendum on whether to quit the bloc.
Meanwhile, pro-Brexit lawmakers who advocate a much more decisive break with the EU than that so far negotiated by May, dismissed the findings as scare-mongering.
“We’ve all had about enough of Project Fear,” said Priti Patel, a former international development secretary.
The government’s analysis shows the UK economy would be between 0.1 percent and 1.3 percent smaller after 15 years under the close relationship envisioned by the government than it would have had the UK remained in the EU.
That cost could rise to 3.9 percent if immigration from the EU slumped and the UK faced higher barriers to trade than it aspires to, a scenario many economists said could arise as the final deal is negotiated. New free-trade deals with the US and other major economies wouldn’t provide much of an offsetting boost, according to the government analysis.
The Bank of England’s analysis reached similar conclusions, though it took a shorter-term view. It concluded that at the end of 2023, the economy would be between 1.25 percent and 3.75 percent smaller under May’s plan than if the 2016 vote to leave had never happened, depending on the closeness of the economic ties finally negotiated.
Both analyses show the cost of an abrupt and messy break with the EU would be much greater. If the UK crashes out of the bloc without a deal in March, the economy would be between 6.3 percent and 9 percent smaller after 15 years than if the UK remained an EU member, according to the government.
The Bank of England modeled what it described as a worst-case no-deal scenario, where ports freeze up, EU workers flee in the tens of thousands, tariffs and regulatory barriers shoot up, and interest rates ratchet higher to contain galloping inflation from a collapsing pound.
Such a doomsday scenario would lead to a 2019 recession deeper than that suffered during the financial crisis and leave the economy more than 10 percent smaller at the end of 2023 than it would have been had the UK never voted to leave. The bank also modeled a less disruptive scenario in which the costs were smaller.
