By Michelle McGagh of Citywire
The negative impact from Brexit probably won’t be felt until 2030, but don’t be fooled into thinking the next few years will be easy for the UK, two leading economists have warned.
The UK has proved surprisingly resilient since the EU referendum with growth of 0.6% in the last quarter beating forecasts and – setting aside the political upheavals of the past eight months – a macro-economic picture that Andrew Goodwin of Oxford Economics called ‘pretty uneventful’.
‘I cannot remember a year when the forecast [for UK economic growth] was so stable – growth at 2% – and all economists were aligned,’ said Goodwin, co-author of a Green Budget report with the Institute for Fiscal Studies (IFS).
Nevertheless, he said the next five years looked set to be ‘gloomy’ although he clarified it might not be Brexit causing problems up to 2021.
‘Brexit is not that much of an issue if the government is successful in terms of a transition agreement and free trade agreement,’ he said.
‘Also, we think the potential negative effects of Brexit will play out beyond 2021 – the next five years is not enough time [for possible problems] to play out.
However, there are two factors that the IFS and Oxford Economics have identified as damaging for the UK economy.
The first is labour supply which will be stunted by less immigration and an equalisation in the state pension age for both men and women in 2020.
A reduction in the number of foreign workers in the UK was not necessarily a ‘factor of Brexit’, said Goodwin, who explained that a gradual recovery in the EU might mean fewer people moving in search of jobs if unemployment fell across the Continent.
Secondly, the UK workforce was currently enjoying a boost from the gradual raising of women’s state pension age, which meant more were staying in work for longer. However, when women reached parity with men with a state pension age of 66 in three years’ time, that effect would start to disappear and act as a ‘substantial drag’ on the economy, said Goodwin.
The quality of the UK workforce had also peaked, he said. University admissions reached a high in 2007 and the country was now ‘over the hump’ of highly skilled workers coming into the labour market.
‘Now we are over the hump of university admissions, they will provide less to growth going forward,’ Goodwin said.
‘Where we do see Brexit issues is moving further out to 2030,’ said Goodwin.
Concerns will materialise if Britain fails to secure free trade agreements or if ‘non-tariff barriers’ are imposed. This would mean UK companies would start off compliant with European rules but gradually, as regulations diverged between the EU and Britain, they would encounter more difficulties in cross-border business.
Goodwin said non-tariff barriers would make it ‘harder to export’ to the EU and that he was ‘downbeat’ about Britain’s ability to conduct ‘frictionless trade’ with Europe.
He claimed that the road Britain was currently on, where it plans to use reacquired powers to limit immigration for example, was ‘economically damaging’.
‘The only thing that could be worse [than the route currently being taken by the government] is no agreement,’ said Goodwin. ‘If the government takes a more liberal approach then the outlook will be better.’