Something about Brexit everyone can agree on

Who says economists can’t agree? In recent days, four reports evaluating the long-term economic impact of Brexit have been published, and they are remarkably consistent on at least two things. First, Theresa May’s deal will hurt the economy over the next decade or longer; and, second, exiting with no deal would be significantly worse.
Ironically, that relative economic clarity may muddy the political waters. It gives all sides ammunition to attack the prime minister’s unpopular deal. It’s not clear anyone listens to experts anymore, but these first attempts to judge the divorce on its economic merits deserve careful consideration by lawmakers. If members of parliament reject May’s deal on December 11, they will have to pick a different course. Those decisions will not be made solely on the economic forecasts, but they will undoubtedly play a role. These studies make it much harder for Brexiters to claim that the best alternative is leaving without a deal.
That option looks awful in light of a report released by the Bank of England. It warned that Britain would face the deepest economic slump since World War II if the country left without a deal. In the worst-case scenario, GDP would contract by 8% within a year, the pound would drop by 25%, property prices would plunge, and unemployment would rise to 7.5%. May’s proposed “economic partnership” would still deliver lower growth than remaining in the EU — the hit could be much as 3.75% — but it would be better than the central bank’s November growth forecasts.
The BOE isn’t alone in warning about the fallout from a no-deal Brexit. The UK government’s own study found that GDP would be as much as 10.7% lower in 15 years in the worst-case scenario.
It’s not just about growth. The economic papers published delivered warnings on immigration, trade and services as well. Here’s my brief takeaway:
Restricting immigration would hurt economic growth in every Brexit scenario, according to the government’s own paper. On trade, the damage is likely to increase as Britain moves further away from enjoying full access to EU markets. The services part of the economy would be worst hit because it isn’t well-covered by World Trade Organisation (WTO) rules. May wants to keep the UK in a customs union with the EU before leaving for a free-trade agreement with the bloc, something that would introduce some frictions to trade. A disorderly Brexit would come with even greater costs. Trade agreements with countries from the US to China would only mitigate Brexit’s impact on UK GDP by 0.2 percentage points, according to the NIESR. That stands as a rebuke to Donald Trump’s warning that May’s deal might mean forgoing the prize of a US trade deal.
For any Brexiters holding out the hope the EU would come to the UK’s rescue because it too has much to lose from not reaching a deal, an analysis this week from the Center for Economic Performance offers little encouragement. It shows a massive gap in losses — both under a no-deal scenario and under May’s deal — between the UK and other EU countries. They can much more easily afford the hit. The one exception is Ireland. It would lose out far more in a no-deal exit.
Then, there’s the electorate. Will the broader public care about any of this? “That’s your GDP, not mine,” was the rejoinder of many to the warnings Brexiters once decried as scare-mongering. There are already echoes of those Project Fear claims today. But they may ring a little hollow this time.
One reason is that the experts were right. While the predicted recession didn’t materialise, the overall conclusion that a leave vote would cost the economy proved remarkably accurate; a number of economists have calculated that the UK has given up at least 2 percent of GDP since then and under-performed other major economies.
It’s not clear that the economic warnings will be ignored the way they were the first time around. Attitudes towards immigration, a key factor in the 2016 vote, have softened, which might make voters more receptive to other arguments. Immigration from EU member states declined dramatically since the referendum, leaving the National Health Service struggling to recruit nurses and other staff.
For many who believe the long-term interests of the UK lie outside the EU, the costs set out in these studies don’t really matter. For them, leaving wasn’t about economics but taking back sovereignty. May’s deal falls well short of that ambition. Ultimately, the government’s challenge is to balance the clear desire by many for more control against the painful costs of a more distant relationship with Britain’s largest trading partner. If it goes to a popular vote, Brexiters will have a harder time making the case that the price is right.
—Bloomberg

Therese Raphael writes editorials on
European politics and economics for Bloomberg Opinion
. She was editorial page editor of the Wall Street Journal Europe