Prof. David Paton

Ten myths from the ‘no-deal’ Project Fear

Myth 1. The UK economy could shrink by eight per cent in a single year under no deal (Project Fear, Bank of England version)
You will have read about this. The Bank of England now sheepishly claims that this was never meant to be a forecast, only a worst-case scenario. Mark Carney surely knew the headlines it would generate. Doubtless he was shocked – shocked! – to see the newspapers treat scenario as a forecast. Whatever.

But in case there is any doubt, the idea that a no-deal Brexit would cause a crash of such proportions is nonsense, pure and simple. An eight per cent reduction in GDP in one year is the sort of outcome that might be expected after a major civil war but certainly not from a shift to trading under standard and well-established World Trade Organisation (WTO) terms. Even the Brexit-hating (but Nobel prize-winning) Paul Krugman raised an eyebrow at the BoE’s most extreme scenarios. Part of the BoE’s rationale for this scenario was that they might put interest rates up to over five per cent, a decidedly eccentric policy response if the UK economy did suffer post-Brexit.

This type of scaremongering brings back memories of George Osborne promising a punishment budget and interest rate rises if the UK voted to leave in 2016. Oxford Economics has a scenario of the economic growth slowing for a while to almost zero, but not contracting – let alone falling by a staggering 8pc. The Bank of England’s job is to communicate these things clearly to the public. Either it has failed in this job, or it never intended to be clear in the first place. Shame on us all if we fall for those sort of tricks again.

Myth 2. Leaving with no deal will lead to GDP being 7.6 per cent lower in 2035-6 than staying in the EU (Project

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