Executive Summary
As the UK leaves the European Union it does so with strong economic fundamentals. The economy is growing, unemployment is low and real wages are rising. The Government’s future economic relationship with the EU and independent global trade policy will be important drivers of future trade flows both with the EU and the rest of the world. This will in turn influence productivity and economic output. Economic analysis can support an understanding of how these changes might affect the UK economy. But it does not seek to predict how the UK economy will perform in the future, not least because the UK’s exit from the EU will be just one of a number of factors impacting economic growth.
The Government has undertaken economic analysis of EU exit under different scenarios, with the objective of providing Parliament and the public with an assessment of the long-term economic impacts of the UK’s future relationship with the EU. The analysis compares potential future policy scenarios against today’s arrangements, holding all other factors constant. The analysis considers the potential impacts from changes to specific trade-related policies, including analysis of EU trade costs and opportunities from an independent UK trade policy.
The Government’s analysis brings together evidence from across Government, insight from external stakeholders and a range of data and analytical tools. It considers both the costs and benefits of moving to new trading relationships with the EU and the rest of the world. An integral part of this analysis is an assessment of how trade barriers could affect costs for businesses in the long run across different sectors of the economy, both as a result of different trading relationships with the EU and signing ambitious new Free Trade Agreements (FTA) with non-EU countries. The analysis uses macroeconomic tools to assess the potential overall impact on the UK economy of these changes in the long run.
This analysis is not an economic forecast for the UK economy. In particular:
• It only considers the potential economic impacts that are specific to EU exit. Leaving the EU is just one of many factors that will influence the UK’s economic performance in the long run. Other factors such as the rise of global value chains, the increasing importance of services trade, technological developments, and global demographics are held constant;
• The analysis does not make judgements about any future UK Government policy decisions or responses; and
• The estimates show the relative impacts of different trading arrangements in the long term and do not estimate the absolute increase or decrease in economic output compared to today. The results therefore show the broad relative impacts of the different scenarios, and in all scenarios the economy would be expected to grow.
No modelling can completely capture the complex ways in which the UK economy could be affected by exiting the EU, particularly given the unprecedented circumstances of the UK’s departure. While the analysis draws on a robust set of tools and evidence, there is an inherent uncertainty around this type of economic analysis. The results are therefore presented as ranges, and should be interpreted with caution.
To view the original posting of the report on UK Government Publications website, click here.
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