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September 26, 2017

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Sesh Nadathur

A couple of related questions about this.

You assume the hit to GDP growth is just 0.8% annually after Brexit, which is lower than most other estimates: a lot of the numbers I see say more like 2%, the University of Leuven study out just yesterday says 4.5% in case of hard Brexit, and so on. How sensitive are your conclusions to these numbers?

The OBR number you quote (of 2% growth) is only for 2017. In 2018, for instance, they forecast only 1.6%. How likely do you really think 1.5% annual growth is over the next decade, given the current expectations of a very hard Brexit? Are you choosing the most optimistic numbers possible to make your numbers work out, or does your calculation still hold even with more pessimistic Brexit scenarios?

How much of the headroom for extra borrowing gets eaten up by lower tax receipts after Brexit, and how much is actually left for any increases in spending?

chris

@ Sesh: 0.8% pa adds up to 8%ish over 10 years - close to NIESR's estimate of the long-run impaact. I'm assuming steady slower growth, rather than a cliff-edge fall. But the latter would justify higher borrowing.
I'm not sure I'm taking optimistic numbers, especially as I'm assuming higher gilt yields when much slower growth might well reduce them.
The big problem with my numbers is that if GDP is 8% lower then public spending will be lower even if borrowing rises by 2.5%ish of GDP, In the long-run, therefore, borrowing alone can't offset the damage done by Brexit.

Patrick Kirk

Chris wrote probably the best article on Brexit before the vote: http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2016/02/brexit-how-big-an-issue.html

People who seem to be arguing that he is not pessimistic enough now really ought to read it all but especially the last paragraph which includes " I fear we’ll be hearing too much hyperbole and misplaced certainty and not enough perspective and doubt" No-one knows what Brexit means yet so its bonkers for Nick Clegg to be pontificating about it being worse that the austerity he helped inflict on the country.

Sesh Nadathur

Thanks for the reply. Makes sense. I think your point (or Jonathan Portes' point) about Brexit causing spending to fall even if borrowing rises is the important one (and sort of related to my final question). Surely that argues strongly in Clegg's favour?

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