Changing Europe report: Brexit deal could shrink UK economy by 5.5%, London experts warn

Theresa May and European Council president Donald Tusk meet during a special EU summit in Brussels
EPA

Theresa May's Brexit deal could leave the UK economy up to 5.5 per cent smaller in a decade's time than it would be if Britain remained in the EU, experts have warned.

If the UK leaves without a deal, the hit on GDP may be as high as 8.7 per cent, according to a new report into the financial impact of Britain’s departure from the bloc.

The cost of public finances could be up to 1.8 per cent of GDP under the Prime Minister’s deal, or 3.1 per cent in a no-deal scenario, according to the report by think tank Changing Europe.

Income per capita would fall by more than 1.5 per cent in the UK under the terms of the Withdrawal Agreement and almost 3.5 per cent with no deal, the research by the London School of Economics Centre for Economic Performance, King's College London and the Institute for Fiscal Studies found.

One of the authors of the report said the UK economy could be expected to be "significantly smaller" than it would have been had Britain stayed in the EU, resulting in higher taxes or lower public spending over the medium to long term.

The report analysed the likely impact of Mrs May's Brexit deal or a no-deal withdrawal over the period to 2030, compared to the baseline projection of how the UK economy would develop under continued EU membership.

Researchers did not factor in the expected impact of any short-term disruption to trade as a result of a possible cliff-edge departure.

Theresa May wants to persuade politicians in the UK Parliament to back the latest Brexit deal
REUTERS

The report estimated the cut in GDP after 10 years, compared to the remain scenario, at 1.9 per cent to 5.5 per cent under Mrs May's deal and 3.5 per cent to 8.7 per cent in a no-deal outcome.

The cost to the Treasury from reduced revenues such as taxes would be 0.4 per cent to 1.8 per cent of GDP under Mrs May's deal and 1 per cent to 3.1 per cent with no deal.

King's College Professor Jonathan Portes, a co-author of the report, 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 economy significantly smaller than it would otherwise have been over the medium to long term.

"That in turn would mean higher taxes or lower public spending."

Co-author Professor Anand Menon, director of The UK in a Changing Europe, said: "Obviously, this kind of economic modelling needs to be treated with appropriate caution. However, our estimates provide a clear indication of the broad scale of the impact of the deal negotiated by the Prime Minister."

Shadow chancellor John McDonnell said: "This analysis confirms what everyone knows: that this deal will be bad for growth, incomes and the public finances.

"If the Prime Minister is unwilling or unable to deliver a Brexit deal that works for the whole country, she should stand aside, call a general election and let Labour deliver a deal that protects jobs and delivers for the whole country."

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