Box sets » Brexit and the EU
Since the June 2016 EU referendum, our forecasts have incorporated a set of assumptions about the economic impact of Brexit on trade, productivity, investment, and migration. In this box, we assessed our current assumptions against the latest evidence.
Our March 2022 EFO was published just over a year since the end of the transition period. In this box, we presented the latest evidence for the impact of Brexit on UK trade and considered the UK's recent trade performance relative to other advanced economies.
On 1 January 2021 some, but not all, of the provisions of the Trade and Cooperation Agreement came into effect following the UK's departure from the EU. In this box we looked at the initial impact of the new regime on UK trade patterns. We also considered whether the data was consistent with our assumption that Brexit will eventually reduce UK imports and exports by 15 per cent.
On 24 December, four and a half years after the EU referendum, the UK and the European Union concluded the Trade and Cooperation Agreement (TCA). This box compared the provisions of the TCA against our previous broad-brush assumption that UK-EU trade would take place under the terms of a ‘typical’ free-trade agreement. It also discusses the initial evidence regarding its short-term impact.
On 31 January 2020, the UK left the EU and the transition period was set to finish at the end of 2020. This box set out our estimate of the effect of the EU referendum result on productivity to date. It also outlined the effect that leaving the EU and trading under the terms of a typical free trade agreement - which we assumed in this forecast - will have on productivity in the long run.
The Government announced plans for a new 'points based' immigration system set to come into place in 2021 that will align migration policy for EU and non-EU migrants. In this box, we considered the impacts of this new system on the outlook for potential output growth.
The UK’s exit from the EU presented fiscal savings to the Government in the form of transfers to EU institutions that featured in spending and retained customs duties. We assumed these would be fully recycled into substitute UK spending in previous forecasts. This box explained how we treated these flows as ‘DEL in waiting’ and how this related to the large increases in departmental spending.
In February 2020, the Government announced its intention to introduce a ‘points-based’ migration system from January 2021 that will align migration policy for EU and non-EU migrants. In this box we looked at the effect of the new migration regime on our borrowing forecast.
In the event of a 'no-deal' Brexit, the UK would be able to apply its own external tariff to goods imported. In this box, we explored the impacts of customs duties on borrowing, what a preliminary estimate of potential revenues would be and what else we would need to consider if this were to be our central forecast.
In the March 2018 Economic and fiscal outlook (EFO) we set out in detail how we calculated the cost of the Government’s financial settlement with the EU. This box from our October 2018 EFO updated our estimate of the financial settlement’s cost and the reasons for the changes since March.
In the November 2016 EFO we made a number of judgements about how the vote to leave the EU would effect the economy in the near-term. This box from our March 2018 EFO compared these judgements against the outturn data that we had received since then, finding that most of these judgements were broadly on track.
Our first post-EU referendum forecast in November 2016 assumed that leaving the EU would result in a less open economy and lower productivity, but we did not incorporate an explicit link between the two over our medium-term forecast horizon. This box from our March 2018 EFO discusses why we did not include this link and what other forecasters have assumed.
Our post-EU referendum publications noted many direct or indirect Brexit-related uncertainties across our economy and fiscal forecasts. One area that will be directly affected after Brexit is customs duties. In our March 2017 Economic and fiscal outlook, this box outlined the how customs duty was currently treated in the public finances data and the fiscally neutral approach that we had used in our forecast pending further information on post-Brexit policy settings.
In our November 2016 forecast, our first following the June 2016 referendum, we revised down our potential growth forecast, primarily reflecting the effect of weaker business investment on productivity growth. To give some context to our central forecast judgements, this box outlined a number of channels through which the decision to leave the EU could affect potential output and the uncertainty associated with estimating these effects.
The UK currently makes a substantial net financial contribution to the activities of the European Union. This box outlined the historical liabilities and other commitments entered into that officials, institutions and MEPs were said to be arguing that the UK should pay a share of, in light of Brexit. The box also listed government policy commitments to fund spending in certain areas where EU funding would be withdrawn.
Our forecasts must be prepared on the basis of current government policy. Before the EU referendum, that policy was to remain in the EU, so that was the basis for our March 2016 forecast. While we made no assessment at that stage as to what the economic and fiscal impacts of Brexit might be, in every forecast we highlight particular risks and uncertainties around our central projections. This box discussed Brexit as a particular source of uncertainty, by highlighting some pieces of external analysis which showed a wide range of views as to the possible impacts on trade, productivity and GDP growth.
In this forecast, we switched to using spending data from a new source, which was the Treasury’s new public spending database known as OSCAR (short for their ‘Online System for Central Accounting and Reporting’). This led to some switches between DEL and AME, which we treated as classification changes, because they affected our presentation of DEL and AME for all years, including outturn and forecasts. This box explained those changes.