14 January 2019

Financial Times: Growth forecasts lost in the fog of Brexit

With prime minister Theresa May braced for a heavy defeat in a crunch Commons vote on her compromise withdrawal agreement on Tuesday, economists are producing short-term forecasts based on the draft exit treaty, a no-deal Brexit, and the possibility of the UK remaining in the EU.

The predictions generally show a no-deal Brexit to be the worst outcome for the economy in 2019 and 2020, but the consensus is that the UK will avoid a recession in any scenario. [...]

The NIESR has a growth forecast for 2019 of 1.9 per cent based on a softer Brexit than that implied by Mrs May’s deal — the research body’s scenario assumes high levels of EU market access for UK goods and services continuing.

But the NIESRr has a separate forecast for the economy to expand by only 0.4 per cent this year if Britain leaves the bloc without an agreement.

Paul Dales, economist at Capital Economics, wrote in a research note last week that, “given the huge and growing uncertainty surrounding Brexit, we are now placing much more emphasis on three forecasts for the economy that are based on different Brexit outcomes”.

Capital has a growth forecast for 2019 of 1.8 per cent if Mrs May’s deal is approved by MPs.

Should Mrs May’s exit treaty be rejected by parliament, and a different Brexit deal result in a delayed UK departure from the EU beyond the scheduled date of March 29, Capital predicts growth of 1.5 per cent this year. In the event of a no-deal Brexit, Capital predicts a mild recession of minus 0.2 per cent growth.

Economists’ increasing tendency to produce a range of forecasts for different Brexit outcomes has prompted Consensus Economics, a consultancy which collates predictions, to compile average views on the scenarios.

Its results show that economists are more pessimistic about the future of the economy than either NIESR or Capital.

For 2019, the consensus forecast is for 1.5 per cent growth if there is a compromise Brexit plan similar to Mrs May’s withdrawal agreement. That compares to growth of 1.6 per cent should Britain stay in the EU, and 0.9 per cent if the UK leaves the bloc without an agreement. The figures for 2020 were similar. [...]

Full article on Financial Times (subscription required)

© Financial Times