Boris Johnson’s Brexit deal is comparable with a “typical” trade agreement and will shrink the economy by 4%, the UK’s fiscal watchdog has said.

In its economic and fiscal outlook accompanying Rishi Sunak’s Budget, the Office for Budget Responsibility (OBR) said there is little in the prime minister’s deal, concluded in December, to change the prediction of the long-term loss to productivity over 15 years.

Labour criticised the chancellor for failing to make any mention of the hit to economic output in his budget speech.

The OBR said that while Johnson’s trade and cooperation agreement (TCA) goes further than typical free trade agreements by guaranteeing zero tariffs and quotas on trade in goods with the EU, it introduces “significant” barriers to trade in services, which account for 42% of exports to the bloc.

These barriers mean “firms will need to establish a new commercial presence within the EU”, raising the prospect of jobs being moved from the UK to the bloc.

The OBR also points out that while Johnson aimed to replicate Canada’s trade deal with the EU, his own TCA fails to match its agreement for both sides to recognise each other’s professional qualifications, making it harder for UK professionals to work in Europe and vice versa. 

There has also been disruption in trade since the end of the standstill Brexit transition period on December 31, which will cause a 0.5% hit to the economy in the first quarter of 2021, the OBR said.

Further disruption is also possible from July when the UK imposes full border controls on trade coming in from the EU, the watchdog warned.

The OBR said: “The conclusion of the [TCA] on December 24 has also partially resolved four and a half years of uncertainty concerning our future trading relationship with our single largest trading partner. 

“We judge the terms of the agreement to be broadly in line with the typical free-trade agreement assumed in our previous forecasts, which entailed a long-run loss of productivity of around 4% compared with remaining in the EU. 

“However, the implementation of the agreement and introduction of health checks at the border has involved more short-term disruption to UK-EU trade than was assumed in our November forecast. 

“The arrangements for trade in financial and other services remain subject to further discussion.”

Shadow Cabinet Office minister Rachel Reeves said: “A hit on our economic output of 4% as a result of the government’s limited deal with the EU – and not a single mention of it from Sunak.

“The deal his government negotiated may be better than no deal but it is still holding back many UK industries.”