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A vote to leave the EU would represent a significant shock to the UK economy. In this piece, we analyse the consequences for the UK economy of leaving the EU, assuming that the UK would no longer have a free trade agreement with the EU.
The Office for Budget Responsibility (OBR) published their macroeconomic forecast today. The outlook is one of continued, albeit moderate, economic growth but more subdued than in their November 2015 forecast. This implies the OBR expect the nation to be around 1½ per cent poorer than they had previously thought by the end of this Parliamentary term[1]. The bulk of the downgrade is explained by domestic factors: a downward revision to potential productivity growth and investment volumes.
The current fiscal mandate’s target is an absolute budget surplus by 2019-20, maintaining this surplus for each subsequent year. In the Office for Budget Responsibility’s (OBR) forecast, published today[1], this target is met, with public sector net borrowing (PSNB) reaching £10.1bn (0.5 per cent of nominal GDP) in 2019-20.
Achieving this target implies a fiscal consolidation this parliament broadly equivalent to that experienced in the last, of roughly 6 per cent of GDP, although the composition is somewhat changed.
The Office for Budget Responsibility (OBR) updated their macroeconomic forecast today. The outlook remains one of continued moderate output growth (marginally below 2½ per cent per annum) and is very similar to the forecast that we produced earlier this month. Figure 1 plots both forecasts together, along with a fan chart that summarizes the uncertainty around NIESR’s forecast, highlighting the lack of discernible difference between the two forecasts.
Figure 1
