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[...] As analysts gauge the longer term, issues in the mix range from the fallout on trade, investment and London’s financial district to knock-on effects on hiring, inflation and demand. There may also be offsetting factors to take into account, including if any of the lost benefits of EU membership can be replicated or replaced via other deals.
With Prime Minister Theresa May indicating she’s pursuing a hard Brexit - cutting the U.K. from the bloc’s single market for greater control over migration - scenarios with higher economic costs have become more likely. Among the most pessimistic is one from MIT forecasting a loss of as much as 9.5 percent of income.
“Trade, openness and migration are the big issues,” said Andrew Goodwin, an economist at Oxford Economics. “We’d expect the sort of deal the U.K. is going for to result in some degree of trade destruction. And if we’re talking about reducing the level of migration, that’s likely to result in growth prospects being weaker.”
Even with Brexit drag, Bloomberg Intelligence and PricewaterhouseCoopers note the U.K. will still outperform most other major euro-zone economies. Others are even more optimistic, with the Economists for Free Trade group seeing a boost from an “optimal” policy of scrapping import tariffs.
How it all plays out will also influence Bank of England policy, with Governor Mark Carney saying on Tuesday that the various Brexit scenarios will help determine when interest rates rise and how fast.
Rounding up some of the assessments shows the variety of potential outcomes from leaving the EU and losing free access to the world’s largest open trading bloc. The U.K.’s potential growth -- how fast it could grow using all resources most efficiently -- could also be undermined. The selection of forecasts here are all based on different assumptions, reflecting the multiple Brexit options.
| MIT | Output loss of as much as 9.5% per person |
| Bank of America Merrill Lynch | Losses in the order of 5-10% of GDP over 15 years |
| Morgan Stanley | Potential growth cut by about 0.5 percentage point per annum if no trade deal and U.K. reverts to WTO rules |
| Nomura | If 10% of financial sector activity operated by foreign institutions transfers, GDP declines by 0.2% |
| Berenberg Bank | Potential growth to slip to 1.8% from 2.2% |
| Oxford Economics | Potential growth to fall to 1.6% from pre-crisis norm of 2.5% |
| Economists for Free Trade | Tariff-free trade with the bloc, alongside the rest of the world, and removal of EU regulation, could boost growth by up to 6% |