Since the announcement of the EU referendum we have been writing analysis on Brexit and its possible impact on the economy and public finances. We have complied our assumptions, judgements and analysis on this page.

  • Current assumptions and judgements

    The OBR is required by legislation to produce its forecasts based on current government policy (but not necessarily assuming that particular objectives will be met). With negotiations over the UK’s exit from the EU still taking place, this is not straightforward. We asked the Government if it wished to provide any additional information on post-Brexit policies in relation to trade and migration that would be relevant to our forecasts. As set out in the Foreword, it directed us to the White Paper published in July 2018. As with previous government publications and speeches on this topic, the final outcome will depend on further policy development by the UK authorities as well as the result of the continuing negotiations with the EU.

    Given the current uncertainty as to how the Government will respond to the choices and trade-offs facing it during the negotiations – which may well extend beyond the near-term Withdrawal Agreement and any accompanying political declaration – we still have no meaningful basis for predicting the post-Brexit relationship between the UK and EU upon which we could then condition our forecast. We continue to assume that the negotiations between the UK and the EU lead to an orderly transition to a new long-term relationship, whatever that relationship might be. We have therefore retained the same broad-brush assumptions regarding Brexit that underpinned our previous post-referendum forecasts.

    Specifically, as regards the economy forecast, we assume that:

    • The UK leaves the EU in March 2019 – two years after Article 50 was invoked.
    • The negotiation of new trading arrangements with the EU and others slows import and export growth over a 10-year period. We calibrated this on the basis of a range of external studies of different possible trade regimes and have assumed broadly offsetting impacts from exports and imports on net trade and GDP growth.
    • The UK adopts a tighter migration regime following departure from the EU than that currently in place, but not sufficiently restrictive to reduce net inward migration to the desired ‘tens of thousands’. This lowered our forecast for potential output growth relative to a scenario where the UK remained in the EU.

    Specifically, as regards the fiscal forecast, we assume that:

    • Any reduction in expenditure transfers to EU institutions – after factoring in the cost of the financial settlement – would be recycled fully into extra spending. This assumption is fiscally neutral.
    • There are no changes to the structure or membership of tax systems for which there are common EU rules (such as VAT and the EU emissions trading scheme or the customs duties that are deemed to be collected on behalf of the EU).

    Since our previous forecast, the UK Government and the European Union published a draft Withdrawal Agreement on 19 March 2018, as well as a joint statement in June 2018 on progress. This set out in further detail the terms of the financial settlement – the so-called ‘divorce bill’ – to complement the joint report from December 2017. We have updated our central forecast to incorporate the latest information on the cost of the financial settlement.

    Economic and fiscal outlook – October 2018 | Page: 33 and 90

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  • In-depth analysis

    book cover working paper ds-01Brexit and the OBR’s forecasts

    In this paper we explain how we expect to approach the task of making forecasts and projections in the pre- and post-Brexit environment. We also look at some of the specific challenges that will be posed for us by forthcoming policy decisions and developments.

    Discussion paper No.3: Brexit and the OBR’s forecasts, 11 October 2018

    book cover mar18 ds-01The EU financial settlement

    In March 2018 we estimated the size of UK’s EU financial settlement, also known as the ‘divorce bill’, and described the composition of the payments.

    Economic and fiscal outlook – March 2018 | Annex B | Page: 215

    book cover nov17 ds-01EU finances and our forecast

    In November 2017 we explained the element of ‘net expenditure transfers to EU institutions’ in our forecasts. We provided further information on how these forecasts are produced and the judgements that underpin them.

    Economic and fiscal outlook – November 2017 | Annex B | Page: 245

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  • 'Box' analysis

    Within each of our key publications we include topical ‘boxes’. These self-contained analyses are unique to the publication in which they appear. Our boxes on Brexit and the EU are below:

    The financial settlement with the European Union: an update


    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.

    Economic and fiscal outlook – October 2018 | Box: 4.1 | Page: 158

    Post-referendum forecast judgements

    Post-referendum forecast judgements A

    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.

    Economic and fiscal outlook – March 2018 | Box: 2.1 | Page: 26

    The effect of trade intensity on productivity

    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.

    Economic and fiscal outlook – March 2018 | Box: 3.3 | Page: 73

    Customs duties assumptions post-Brexit

    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.

    Economic and fiscal outlook – March 2017 | Box: 4.4 | Page: 124

    Possible effects on potential output of the UK leaving the EU

    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.

    Economic and fiscal outlook – November 2016 | Box: 3.1 | Page: 46

    External views on the possible scope of Brexit negotiations

    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.

    Economic and fiscal outlook – November 2016 | Box: 4.4 | Page: 160

    External analysis of ‘Brexit’ risks and uncertainties

    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.

    Economic and fiscal outlook – March 2016 | Box: 3.4 | Page: 84

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