Julian Jessop Profile picture
Mar 27 8 tweets 4 min read Twitter logo Read on Twitter
FYI, Richard Hughes (Chair of the #OBR) did *not* say yesterday that #Brexit has (already) shrunk the UK economy by 4%.

Instead, he repeated the OBR’s estimate that it will reduce long-run productivity by 4%, which is still just an *assumption*.

This needs some explaining… 🧵
The 4% focuses on the negative impact of a fall in trade, assuming both exports and imports are 15% lower in the long run (c.15 years) than if the UK had remained in the EU.

The evidence to date has not been enough to change the OBR’s mind, but it is far too soon to be sure…
Indeed, much of this evidence is hard to square with the assumption of a large and permanent #Brexit hit: goods trade with the EU and the rest of the world have performed similarly, services have held up well, and overall trade intensity now appears to be recovering...
It is worth stressing too that the 4% was not based on original work by the #OBR.

Instead, it is drawn from a selection of external studies of the impact of a ‘typical’ free trade agreement, and some strong assumptions about the links between trade intensity and productivity...
The OBR have made a number of other assumptions about trade that can also be challenged.

In particular, they have assumed that any new trade deals with non-EU countries will have no material impact on UK GDP (citing, to be fair, the government's own impact assessments here).
And of course, #Brexit isn't just about trade.

The OBR (and others) have become much less pessimistic about the impact on net #migration

They remain pessimistic about the impact on #investment, but this is largely based on a simple extrapolation of the rebound from the GFC...
Finally, Hughes himself acknowledged that all forecasts can turn out to be wrong.

It may be unfair to point out the #OBR’s recent misses on the public finances (hard for anyone to get right at the best of times).

But it is clearly daft to treat every OBR projection as gospel.
ps. you can find a summary of the OBR's Brexit analysis here:


See also Box 2.4 on page 46 of the latest EFO...


Also take a look at

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More from @julianHjessop

Jan 28
FWIW, here are my three takeaways from #JeremyHunt's interview in the Times:

1. Welcome emphasis on encouraging over-50s back to work. This is long overdue, and will need more than just exhortations and gimmicky 'MOT' schemes, but he seems to get this...

2. 'Putting sound money before Tory ideology' is a good line: if badly done, tax cuts could keep #inflation high and add to pressure on interest rates.

But still wrong to rule them out: well-targeted cuts could help with both demand and supply, boosting growth without inflation.
3. Prioritising cuts in business rather than personal taxes is not a bad idea: could do more for supply-side performance, with less risk of inflation.

The distinction between the two is blurred anyway: the burden of corporate taxation is ultimately borne by real people.

Read 5 tweets
Dec 23, 2022
Since #food prices are in the news again, here are three charts comparing the UK and the rest of Europe.

(Spoiler alert: it's no consolation, but food price inflation is even higher in the EU than in #BrexitBritain)

1. What's happened to food prices (in levels) since 2016...
2. Cumulative #food price #inflation since December 2019...
3. The latest annual food price #inflation rates (for November)...
Read 4 tweets
Dec 1, 2022
Four quick points on the latest stories about #Brexit's impact on UK #food price #inflation...

1. This is not news: the original research by the same authors was first published (by UKICE) back in April, and the Guardian etc even wrote it up at the time!

2. These reports claim that new non-tariff barriers (NTBs) added 6% to UK #food prices in the two years to end 2021. But this number is based on hypothetical costs and modelling, not actual data on NTBs. (Recall that the UK has not imposed full checks on imports from the EU.)
3. It is still plausible that Brexit uncertainties and adjustments to UK-EU supply chains have added something to import costs and food prices.

Nonetheless, the 6% figure is really just sophisticated guesswork, especially given everything else going on over those two years.
Read 5 tweets
Nov 15, 2022
Mixed bag of UK labour market data... (short 🧵)

#Unemployment rate down on the quarter but up on the month, and flattered by rise in number of people no longer actively looking for work (incl. long-term sick)

#Employment rate (first chart 👇) still below pre-Covid levels...
Earnings data a little better than expected: average total #pay (incl. bonuses) rose 6.0% in 3m to September and regular pay (excl. bonuses) by 5.7%, although still falling in real terms.

And early PAYE estimates for October point to a 6.0% increase in median pay last month...
Payroll #employment rose another 74,000 in October and remains on strong upward trend.

But separate Labour Force Survey suggests total employment (incl. self-employment) is much weaker.

Both measures have pros and cons - take your pick!
Read 4 tweets
Oct 3, 2022
A bit of myth busting... the #BoE hasn't spent £65 billion to prop up the economy / bail out pension funds / save #KwasiKwarteng (or any variation)...

Instead, it has said it will buy gilts in 13 daily auctions, with a limit of £5bn each day.

Today it did just £22 *million*...
The aim of this policy is to cap gilt yields by signalling that the Bank will act as the buyer of last resort to prevent forced sales by pension funds from driving yields even higher.

If this signal is credible, the Bank will not actually have to buy anywhere near £65 billion.,,
The fact that it bought just £22 million today can also be seen as a sign that it is more comfortable with where yields are now. (Longer dated yields have fallen to around 4%.)

Note also that offers to sell today amounted to less than £2bn - a sign that the panic is easing.
Read 4 tweets
Oct 2, 2022
A 🧵on #benefits

#KwasiKwarteng’s reluctance to confirm that benefits will be uprated in line with #inflation has fed speculation that the government is considering a real-terms cut.

I’m going to explore this further, but at first sight it looks like a very bad idea...
To recap, benefits are usually uprated in April in line with the CPI measure of inflation recorded in the previous September. This meant that benefits rose by just 3.1% in April this year (the inflation rate in September 2021), well below actual inflation of 9.0% in April itself.
The row about this at the time was partly defused by additional one-off payments to low-income households.

But Ministers also argued that benefit claimants could expect to catch up next year when payments were uprated in line with the September CPI (probably about 10%).
Read 15 tweets

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