- GDP per capita is forecast to fall between 0 and 1% by 2030 if the UK successfully negotiates a free trade agreement (FTA) with the EU
- GDP per capita is expected to fall by 2–3% if the UK fails to negotiate an FTA and
trades with the rest of the EU using World Trade Organisation (WTO) rules
Oxera, a leading economics and financial consultancy, has today released an analysis of 12 established macroeconomic forecasts on the medium- and long-term potential effects of Brexit on the UK economy, which includes analysis from the CEPR, PwC and Open Europe. These forecasts suggest that Brexit will lead to a decline in living standards over the next 15 years, with no forecaster who publishes per-capita values anticipating that leaving the EU will have a positive effect on the UK’s GDP per capita.
If the UK successfully negotiates an FTA with the EU, the available forecasts show a decline of 0–1% in GDP per capita. In the event that the UK fails to negotiate an FTA, macroeconomic forecasters predict a fall of 2–3% of GDP per capita.
The economic effects on the UK economy of potential Brexit are driven by the conditions under which the UK can sign an FTA with the EU. If a deal that is acceptable to both sides cannot be reached or takes considerable time to agree, the UK would have to trade under the less favourable WTO rules.
David Jevons, Partner, Oxera said:
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“If the UK leaves the EU, there will be substantial uncertainty in terms of trade between the UK and the EU. Our analysis of macroeconomic forecasts highlights a significant agreement among economists. In assessing the effect of Brexit on economic output, there is little doubt that macroeconomists believe GDP per capita, which directly affects living standards, would decline.
A vote to leave the EU is likely to be the start of a long period of negotiation between the UK and the EU. In the event of Brexit, the UK would have to negotiate terms to leave the EU and subsequently also future terms of trade with the EU. Whether under an FTA or WTO rules, macroeconomists foresee a decline in GDP per capita over the next 15 years, albeit not as severe as the recent Treasury forecasts suggested, which predicted a fall of 7.5% in GDP overall.”
Other key findings of the analysis of macroeconomic forecasts include the following.
- If the UK cannot negotiate an FTA, and trades under WTO rules, the UK would face the EU’s Common External Tariff. This would see tariffs applied to UK exports to the EU, which could create a barrier to investment in the UK.
- Under a negotiated FTA, UK companies exporting to the EU would still need to accept EU rules—for example, UK exporters would need to comply with EU rules on product safety.
- If the UK trades under WTO rules, restrictions on the movement of labour from EU countries to the UK would be likely to be enforced, which would have a negative impact on the potential size of the UK economy, as restricting the potential labour supply would limit future growth opportunities for the UK economy;
- If Scotland secures a second referendum and votes to leave the UK, it would be likely to seek to join the EU as an accession state. This would amplify the uncertainty surrounding the UK as it negotiates a trade agreement with the EU, and could further reduce the inward investment into UK markets.
To read more from Oxera’s team of expert economic analysts, please visit: www.oxera.com