The Economic Effects of the UK Government's Proposed Brexit Deal

16 Pages Posted: 30 Jan 2019

See all articles by Arno Hantzsche

Arno Hantzsche

National Institute of Economic and Social Research; University of Nottingham

Amit Kara

Bank of England - Monetary Policy Committee

Garry Young

National Institute of Economic and Social Research

Date Written: January 2019

Abstract

The focus of our analysis is on how the UK government's proposed Brexit deal is likely to affect the economy. First, we assess how trade, migration, foreign direct investment, productivity and contributions to the EU budget might change by reviewing current proposals against historical evidence. Second, we use the National Institute Global Econometric Model (NiGEM) to analyse the macroeconomic effects. Our assessment is that trade with the EU, especially in services, would be more costly after Brexit. This would be likely to have adverse effects on living standards in the UK. Our central estimate is that if the government's proposed Brexit deal is implemented, then GDP in the longer term will be around 3% lower per head than it would have been had the UK stayed in the EU. If the UK were to stay in a customs union with the EU, or if the Irish backstop position was to be invoked, there would still be a hit to GDP per capita of 2%. These estimates represent our considered view of the economic impact of the government's proposed Brexit deal, but they are themselves uncertain as there is no historical precedent of a country leaving a major trading block such as the EU.

Keywords: Brexit, economic integration, NiGEM, simulation analysis

Suggested Citation

Hantzsche, Arno and Kara, Amit and Young, Garry, The Economic Effects of the UK Government's Proposed Brexit Deal (January 2019). The World Economy, Vol. 42, Issue 1, pp. 5-20, 2019, Available at SSRN: https://ssrn.com/abstract=3325392 or http://dx.doi.org/10.1111/twec.12770

Arno Hantzsche (Contact Author)

National Institute of Economic and Social Research ( email )

2 Dean Trench Street
Smith Square
London, SW1P 3HE
United Kingdom

University of Nottingham ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Amit Kara

Bank of England - Monetary Policy Committee ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom
+44 20 7601 5047 (Phone)
+44 20 7601 3550 (Fax)

Garry Young

National Institute of Economic and Social Research ( email )

2 Dean Trench Street
Smith Square
London, SW1P 3HE
United Kingdom

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