In his Budget speech today, George Osborne made out as if the Office for Budget Responsibility was worried about Britain leaving the EU and quoted it saying “a vote to leave in the forthcoming referendum could usher in an extended period of uncertainty”. Listening, I was amazed: how could he enlist the independent OBR on either side of the UK referendum debate?
But the document itself (Box 3.4, pdf) tells a very different story. Rather than take sides the OBR explicitly says “it is not for us to judge” – and quotes a study by Open Europe, a think tank, which…
… modelled a scenario in which the UK leaves the EU in 2018 and found that GDP could be 2.2 per cent lower or 1.6 per cent higher by 2030, depending on the arrangements for trade and regulation that follow ‘Brexit’.
But the point the OBR wanted to make was that any Brexit effects – good or bad – would take years. We ought to dismiss the panic scenario is being painted. So leaving the EU would have almost no economic effect in the short term. Estimates for what would happen after Brexit are…
as large as they are, in part, because they incorporate ‘dynamic’ effects, reflecting for example long-term changes in UK productivity. As well as being highly uncertain, these take many years to materialise, with IMF research suggesting that it takes around ten years for half the effect of changes in the trade share of GDP to be seen in income levels.
So even if we were to base our central forecast on an assumption of ‘Brexit’, the full impact would not show up within our five-year forecast horizon.
So rather than fretting about “uncertainty,” the OBR is fairly relaxed about Brexit, seeing it as something that would take ten years to have take full effect.
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