7th October 2019
The Treasury forecasts for the effect of the Referendum on the UK economy are now known to have been wrong. There was no huge economic meltdown due to "uncertainty" in 2017, unemployment has stayed low and inflation is steady. In fact the UK economy has performed better than that of Germany and Italy over the past 3 years. Economics correspondents know this but have have failed to cover it with any prominence.
In late 2018 to early 2019 The Bank of England and Treasury/Government produced reports for a "No Deal". The Treasury forecasts were actually quite mild but packaged as the sum of small effects over 12 years that gave a total, imaginary figure of 7.5% fall in GDP growth relative to an imaginary baseline. The figure is imaginary because no economist can reliably predict even 2 years ahead and because it used an imaginary baseline for the effect of remaining in the EU..
The effects of Brexit were quoted relative to the expected high growth of the UK within the EU. This "baseline", expected growth affects all the figures for the effect of "No Deal" because these figures are the difference between the economy under "No Deal" and the imagined, blooming economy under remaining in the EU.
It is now almost four years since the Referendum, the UK is still in the EU and its economy is doing as well as the other large economies which means we have 2 years of extra data from which to construct a true baseline. The UK is doing as well as the other large EU economies so we can use the past two years to construct a better baseline for remaining in the EU.
The Treasury figures extended to 2030 and over this 12 year period the difference between the real (dotted in red above) and imaginary (yellow) baseline becomes 5% which means gdp growth would only be reduced by 2.5% over 12 years, 0.2% pa, if the correct baseline were used. The tiny reduction in growth by 0.2% pa is too small to be validly predicted.
The Bank of England has now actually changed its baseline. The change in Bank of England baseline from the yellow to the blue line in the graph above changes the Treasury figures from a 7.5% fall in GDP growth by 2030 to a 4% fall by 2030. This is only 0.33% per annum! Such a small economic effect is not predictable by economists (of course the 0.6% pa lower growth in the original report is not predictable either). Yet we have a majority of MPs in the House of Commons claiming to be heroically saving us from No Deal.
Reflect for a moment on the difficulty of predicting a real baseline, one that takes account of the major EU economies over 12 years, and a real prediction for the UK economy for 12 years hence. Economists simply cannot do such predictions.
The Treasury forecasts for the effect of the Referendum on the UK economy are now known to have been wrong. There was no huge economic meltdown due to "uncertainty" in 2017, unemployment has stayed low and inflation is steady. In fact the UK economy has performed better than that of Germany and Italy over the past 3 years. Economics correspondents know this but have have failed to cover it with any prominence.
In late 2018 to early 2019 The Bank of England and Treasury/Government produced reports for a "No Deal". The Treasury forecasts were actually quite mild but packaged as the sum of small effects over 12 years that gave a total, imaginary figure of 7.5% fall in GDP growth relative to an imaginary baseline. The figure is imaginary because no economist can reliably predict even 2 years ahead and because it used an imaginary baseline for the effect of remaining in the EU..
The effects of Brexit were quoted relative to the expected high growth of the UK within the EU. This "baseline", expected growth affects all the figures for the effect of "No Deal" because these figures are the difference between the economy under "No Deal" and the imagined, blooming economy under remaining in the EU.
It is now almost four years since the Referendum, the UK is still in the EU and its economy is doing as well as the other large economies which means we have 2 years of extra data from which to construct a true baseline. The UK is doing as well as the other large EU economies so we can use the past two years to construct a better baseline for remaining in the EU.
The Bank of England has now actually changed its baseline. The change in Bank of England baseline from the yellow to the blue line in the graph above changes the Treasury figures from a 7.5% fall in GDP growth by 2030 to a 4% fall by 2030. This is only 0.33% per annum! Such a small economic effect is not predictable by economists (of course the 0.6% pa lower growth in the original report is not predictable either). Yet we have a majority of MPs in the House of Commons claiming to be heroically saving us from No Deal.
Reflect for a moment on the difficulty of predicting a real baseline, one that takes account of the major EU economies over 12 years, and a real prediction for the UK economy for 12 years hence. Economists simply cannot do such predictions.
We can see how the baseline is a complex moving target from the growth of large EU economies over the past 3 years:
Simply extrapolating financial crisis rebound growth in 2014/15 into the far future as a "baseline" is absurd.
There are other problems with the No Deal predictions. The economists have not been modelling the whole UK economy so not considering product substitution from domestic or non-EU production, the improvement in the UK-EU Trade Deficit and UK-EU Balance of Payments Deficit and all the other factors that rattle through the whole economy and were simply cherry picking the loss of positive factors from our EU trading relationship then subtracting these from an imaginary baseline that assumes the EU grows rapidly. This is clearly the case and means that the Bank and Treasury reports are no more than Remain propaganda.
Many of the economist's reports that cover the effect of No Deal use the early, false Bank of England/Treasury baseline so any that predict less than 5% fall in GDP growth by 2030 may now be predicting a growth in GDP after Brexit relative to remaining. Of course, we cannot know for sure because, as the shifting baseline over the past 2 years shows: economists cannot predict more than 2 years hence.
The recent Bank of England figures for 2024 are less severe than in their previous report, but, of course, the Bank of England figures were NOT predictions, as the Bank said in its report:
"The “disruptive” and the “disorderly” Brexit scenarios are therefore not forecasts for the economy in the event that the UK leaves the EU with no deal and no transition period." See No Deal Fake News
Indeed, the Bank of England "scenario" for a No Deal Brexit was less severe than the ordinary, annual scenario used for stress testing banks, even before the false baseline became clear. The Bank has already adjusted its "scenario" for No Deal to be 2% less severe but was careful not to state clearly that this was because the baseline had changed - probably because this would draw attention to baselines in all the Remain economist's reports.
The best kept secret of the entire Referendum campaign is that the EU has not benefited you and me.
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| See How the Economics Profession got it wrong on Brexit |
There is no indication that being in the EU has been a huge boost to the UK economy compared with not being in the EU so the starting assumption that tariffs, trade terms etc must, inevitably, damage the UK economy is nonsense. When the "No Deal" "predictions" are considered in depth, such as in this report by a group of Remainer economists - How the Economics Profession got it wrong on Brexit - it is obvious that economic predictions are being used as political fake news.
Another great "con" of the No Deal predictions is that they mix up GDP growth due to increased population size with GDP growth due to economic activity. It is assumed that the population will not grow as strongly after Brexit (great news, if true) and often also assumed that each new worker that would have arrived is far more productive than those already here. As an example in the Greater London Authority report, Preparing for Brexit), commissioned from the economic consultants Cambridge Econometrics (CE):
In scenario 4 instance GVA is predicted to be 2.7% lower, and population to be 2.2% lower. Combining these two estimates gives a reduction of per capita GVA of 0.5% by 2030.
So the Greater London Authority report, which was trumpeted as suggesting a 3% lower growth by 2030 actually only predicted 0.5% lower growth per head in total over 12 years.
The actual data for the effect of population growth in the UK is that each added worker adds a worker's worth of GDP - increasing the population does not increase our individual wealth.
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| Each added worker adds a worker's worth of GDP |
Also see Solving the NI Border Problem
7/10/2019
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