John Redwood

Can long-term forecasters answer these questions?

I find it difficult to believe some in the media are taking these latest economic forecasts for 15 years outside the EU seriously. They have all the hallmarks of the approach that the Treasury used to get the short-term forecast for the aftermath of a Brexit vote so hopelessly wrong.

The first thing to stress is the forecasts which state the UK as a whole will lose 2 percent of GDP if we stay in the single market, 5 percent if we leave with a trade deal, and 8 percent if we leave without a trade deal are not saying we will be between 2 to 8 percent worse off in 15 years time. This is an estimate of slower growth, not an absolute decline. If we carry on growing on average at 2 percent per annum over the 15 years, we will be 34.6 percent better off at the end of the period. These forecasts suggest that might only be 32.6 percent or on a worst case 26.6 percent better off. The 2 percent figure over fifteen years is little more than 0.1 percent per annum, or a rounding error.

The second thing to stress is that to forecast this accurately over 15 years they have to forecast two unknowns – how well would we do if we stayed in the EU, and how well will we do as we are leaving? Why do they assume that staying in is a risk-free positive option? What assumptions should they make about tax levels and costs of regulation in the future? Will there be new taxes that hit UK economic activity? Will there be something like the ERM again that triggers a major recession? How much longer will the EU continue austerity policies?

The third thing to point out is there are many more issues which will have a far bigger impact on growth than Brexit.

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