Theresa May’s Brexit deal could shrink the UK’s economic output by up to 5.5% by 2030, new estimates warn.
The Withdrawal Agreement, approved by EU leaders in Brussels over the weekend, could trigger economic consequences which “far outweigh” any gains from stopping payments to the EU post-Brexit.
The findings into the long-term economic impact of the deal, published in a report by think tank UK in a Changing Europe, also suggest that the damage to the economy would be much worse in a “no deal” scenario.
It follows estimates by the Office for Budget Responsibility that the UK economy could shrink by 2% in the months following Brexit, and recent analysis by Citi investment bank which suggests this reduction has already taken place compared with if the UK had voted to remain.
On Monday, a report by the National Institute for Economic and Social Research also warned May’s deal could have the equivalent impact of losing the economic output of Wales or the City of London.
The report warns of “difficult choices” ahead for policymakers, which could see taxes raised.
The additional trade barriers…would leave the UK significantly smaller than it would otherwise have been over the medium to long term
“There is little if any sign that the starkness of these choices has yet been appreciated, not least by the two main political parties, [who both in the 2017 election] seemed to imply that a post-Brexit world would be one of business as usual,” the report reads.
The research was carried out by the London School of Economics, King’s College London and the Institute for Fiscal Studies.
Researchers considered three scenarios as set out by the Prime Minister: Her deal, no deal (the lack of a trade or customs agreement between the UK and the EU), or no Brexit, the last of which they referred to as the “baseline”.
Gross Domestic Product (GDP) – a measure of all the goods and services produced in the UK – could see a reduction of between 1.9% and 5.5%, or £140bn a year, in 10 years’ time if the Withdrawal Deal takes Britain out of the EU, they found.
This is compared with a reduction of 3.5% to nearly 8.7% in the long term if the UK left the EU without a deal.
Figures also show that the cost to public finances would be between 0.4% and 1.8% of GDP with May’s Brexit deal, or between 1% and 3.1% in the event of a no-deal, with more expensive trade barriers between Britain and the bloc.
However researchers acknowledge that the figures are subject to a “high degree of uncertainty”.
“Clearly, these figures are significant,” the report read.
“For all the talk about a Brexit ‘cliff edge,’ should the Withdrawal Agreement be signed and subsequently ratified, the UK would continue to trade with the EU on essentially the same terms until the end of the transition period.
“Only thereafter would the practical impact of Brexit be felt.”
Professor Jonathan Portes, of the UK in a Changing Europe initiative, said: “The Brexit deal would leave us in a customs union with the EU for the indefinite future – but it is a long way from frictionless trade.
“The additional trade barriers, combined with reductions in both skilled and unskilled migration from the ending of free movement, would leave the UK significantly smaller than it would otherwise have been over the medium to long term.
“That in turn would mean higher taxes or public spending.”