Old story given new legs

There have been several repeats of the OBR forecasts that Brexit has damaged the economy, and will have a worse impact than Covid, not least in, of course, the Graun (28 Oct -- link in Briefings for Britain article below).

Briefings for Britain this week offers a concise critique -- again 

Why the OBR is wrong to claim that Brexit will cause a 4% drop in long-term growth 

Several news outlets have been carrying the Office for Budget Responsibility’s claim that Brexit will have a worse effect on the economy than COVID.  For the OBR’s report, see the linked pdf.  From the outset, it’s worth noting that the quoted figure of a 4% Brexit impact on long-term growth is not new or original. It comes from the Treasury five years ago and was heavily criticised by BfB years ago. 

We’ve carried rebuttals of claims like this many times before - particularly in our Report from last year. This time, we’ll look in detail at the Report itself, and suggest a few places where the analysis relies on unsafe assumptions.

Firstly, it’s worth noting that the report stresses the negative impact that a fall in exports has on UK trade (pp. 58-60).  But the report admits that it doesn’t incorporate the very latest trade data, which revised up the estimates for Quarter 2 of 2021.  Moreover, it doesn’t give enough attention to the fact that EU exports have been performing better than non-EU ones – which makes no sense if trade barriers to the EU are supposed to be the cause of difficulties.

In response to this, Remainers might argue that the disruption caused by Brexit to British supply chains could have related to lowered exports.  But again, there is a difficulty in explaining why EU exports should not fall more than non-EU ones in this scenario.  More generally, though the OBR mentions shortages of hauliers as a Brexit factor (p. 47), we’ve demonstrated before that the shortages of hauliers come from a cocktail of local factors, in which reduced EU labour supply is a minor element.

Nor can one argue that British businesses are particularly prone to reshoring their suppliers due to Brexit.  As the OBR’s report itself acknowledges on p. 40, ‘a survey of 353 companies across 77 countries found that, post-pandemic, two thirds of businesses were planning to source more locally and 20 per cent planned to hold more inventories.’

Secondly, we note that the OBR makes reference to the estimates derived from a report from the Centre for European Reform published in May 2021 (p. 59).  But this methodology, as Graham Gudgin argued in 2018, is highly speculative.  It tries to mock up a model UK based on the weighted performance of a selection of countries, and is highly influenced by which you choose and how they’re weighted.

Ultimately, the OBR falls back on its November 2016 predictions, trying to argue that trends since then back up its predictions.  But one glance at the graph on p. 59 makes clear that there’s been massive volatility – and that the trend line hardly follows the path of the predictions with any significant fidelity.

Finally, to end on some good news.  While the UK economy suffered particularly from the effects of the pandemic, Britain is also on course to see a substantially stronger recovery than the Eurozone in 2021.  Needless to say, Remainers have ignored this particular international comparison.

 According to the Gruan, however, the public are right behind the pessimists,and, strangely, the nerdy economists at the OBR. In a classic link:

The survey comes after Richard Hughes, the chairman of the Office for Budget Responsibility, said his organisation calculated that the negative impact on GDP caused by the UK’s exit from the EU was expected to be twice as great as that resulting from the pandemic.

Implying the two aspects of the story have something to do with each other, just because one comes after the other! In the  pages of the Observer/Guardian that is.

Almost twice as many voters now believe Brexit is having a negative effect on the UK economy as think it is benefiting the nation’s finances, according to the latest Opinium poll for the Observer, carried out during budget week...

The actual data show fairly small differences of opinion on matters such as effects on salaries and wages and 'your personal situation' (with lots of 'don't knows'/undecideds), but big differences on 'prices in the shops' and 'ability to import goods from the EU'. Overall, 'The Opinium survey found that 44% of people think Brexit is having a bad impact on the UK economy, compared with 25% who think it is having a positive effect', hence the headline.

Then we return seamlessly to the OBR report which claims that: 'shortages of lorry drivers were at least partly caused by Brexit.'

However, one disappointment from the survey:

While Opinium found evidence of clear anxiety about Brexit, this has yet to translate into a negative effect on support for the Tory party.

Could be all sorts of things beyond the ken of  liberal Remainers here, of course, like even if the economy is being harmed at the moment, Brexit is still worth it and we would be nuts to rejoin?