NIESR: OBR lays bare fiscal cost of Brexit
24 Nov 2016 01:11 PM
The Autumn Statement makes clear the immediate fiscal impact of Brexit. The OBR has announced that the pre-measures increase in cumulative borrowing by 2020-21 is forecast to be £100bn higher than otherwise. Of this cumulative increase in borrowing, £58.7bn is ‘related to the referendum result and exiting the EU’ over this five year period. The main factors are the cyclical slowdown, lower productivity and lower migration as a result of Brexit. It is worth noting that the UK’s net contribution to the EU last year was £8.5bn.
The Autumn Statement mirrors NIESR’s forecast of a short-term economic slowdown and a permanent loss in output as a consequence of the UK’s decision to the leave the EU. NIESR researchers welcome this realistic assessment of the impact of Brexit, given the exceptional uncertainties, and the relaxation of fiscal rules as a result of the impact on public finances. We also welcome the re-introduced of flexibility for a responsive fiscal policy. However, the weakness of the Autumn Statement is the lack of an immediate response to the deep questions reflected in the Brexit vote. Of the £23bn National Productivity Investment Fund, most of the spending is back loaded with only £8.5bn spent on non-housing investment in the next four years. There is nothing to address the fundamental skills problem in many of the regions of the UK.
Dr Angus Armstrong, NIESR’s Director of Macroeconomics, said: "Brexit has had a very substantial impact on the OBR’s fiscal forecasts, as NIESR’s estimated. We welcome the Chancellor’s more accommodating fiscal stance and pragmatism in re-introducing policy flexibility. We had hoped for much more in terms of industrial strategy and to address the skills and output gap across the regions at the heart of long term prosperity.”
Simon Kirby, NIESR’s Head of Macroeconomic Modelling and Forecasting, said “The OBR’s latest forecasts make for sobering reading. They expect the economy to slow significantly over the course of the next year. Similar to NIESR’s projections published earlier this month, they expect per capita real disposable incomes to fall by ½ per cent in 2017, as wage growth fails to track the pick-up currency depreciation induced increase in consumer prices.”
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