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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… 🧵
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…
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...
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).
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...
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.
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:
obr.uk/forecasts-in-d…
See also Box 2.4 on page 46 of the latest EFO...
obr.uk/docs/dlm_uploa…
Also take a look at
obr.uk/forecasts-in-d…
See also Box 2.4 on page 46 of the latest EFO...
obr.uk/docs/dlm_uploa…
Also take a look at
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