The NIESR blog is a forum for Institute research staff to provide an informed, independent view on current economic issues and recent NIESR research. The views expressed here are those of the authors, and are not necessarily those of the Institute.
Recent leaks of a Brexit impact study produced for the Department for Exiting the EU have reignited the debate about the costs of leaving the EU without a comprehensive trade agreement. The reported magnitude of estimated aggregate effects for such a ‘no-deal’ scenario is very similar to estimates published independently from each other prior to the Brexit referendum and also in line with updated work presented in our latest National Institute Economic Review: a loss in annual GDP relative to what it would otherwise have been of 7 to 8 per cent within the next 10 years. Put differently, annual income per head would be up to £2,000 less, compared to a scenario in which the UK remains in the EU’s single market.
What remains less clear in the debate is how these numbers came about, leaving room for political attack. This blog explains the assumptions behind our analysis.
The Prime Minister and four of her senior cabinet colleagues will in a series of speeches over the next few days set out a vision for the UK after Brexit. Those speeches will likely reiterate the government’s official goal of ‘free and frictionless’ trade with the EU. Less clear are the concessions that the UK is prepared to make to achieve this objective. In this blog we explore the likely trade-offs from the prism of a simple schematic and focus on three key areas of negotiation - market access, labour movement and budgetary contribution. There is no magic formula and the decision is ultimately political. With that in mind, the PM and her colleagues should spell the priorities on each of these three dimensions in the forthcoming speeches.
As we have pointed out in recent editions of NIESR’s Economic Review the UK economy is showing signs of a divergence, with growth slowing here alongside growing evidence of a sustained recovery in the rest of the World.
The Referendum result and consequent uncertainty over the exact form of future trading relationships imparts two substantive effects. First, it tends to reduce expected trade in goods, capital, labour and services with the EU. Secondly, the uncertainty over future trading relationships will tend to lead to a delay in domestic investment or a diversion internationally to more certain destinations overseas.
The National Minimum Wage (NMW) has been operating since 1999, with the objective of combating exploitative pay, and the National Living Wage (NLW) since 2016 to raise wage levels more widely for workers aged 25 and over.
The government’s strategy for improving educational outcomes focuses on improving schools’ performance. But how important are schools in explaining variance in pupil attainment? There is surprisingly little evidence on the issue. We sought to address this question in an article for the February 2018 edition of the National Institute Economic Review, examining the attainment of half a million pupils in more than 3,000 English secondary schools over the period 2009/10 to 2015/16.
In recent years governments of all hues have urged private schools to sponsor state schools to help raise education standards in state schools. In 2012 Lord Adonis, who had earlier been Labour’s Minister for Schools, argued that successful private schools, whose “DNA” incorporated “independence, excellence, innovation, social mission”, should sponsor state academy schools.
A fog of uncertainty has hung over the British economy since the summer of 2016. The EU referendum, snap general election and hung parliament coincided with spikes in quantitative measures of uncertainty. The Bank of England, HM Treasury and the International Monetary Fund argue that this uncertainty will not pass without economic consequences.
The NHS is in financial turmoil. The country in stricken with Aussie flu, A&E units up and down the country are being swamped. There is an acute shortage of hospital beds and the 4hr wait is being missed by up to a quarter of A&E units. Solutions are desperately being sought. A National Inquiry is being called for and many are suggesting that a hypothecated tax, earmarked for NHS spending, is the way forward. Such a tax is very unlikely to work.
Three senior members of the Institute were asked by the FT for their views on the year ahead. In the interests on transparency, we publish those replies. The answers given are from the Director, Professor Jagjit Chadha (JC), the Director of Macroeconomic Modelling and Forecasts, Dr. Garry Young (GY), and the Associate Research Director for Trade, Investment and Productivity, Dr Monique Ebell (ME).
A previous blog discussed the implications for government bond yields of changes to euro area monetary policy, namely a reduction of assets purchased by the European Central Bank. However, this is unlikely to be the only development that will affect long-term interest rates European governments pay on their debt, and ultimately firms pay to fund investment. A second development, which may be taken into account by financial markets, is the intensifying debate about institutional reforms in the euro area.
In a recent piece in the Financial Times, Tristan Hansen and Eric Lonergan make the case for the U.K. government to “think big and tap the bond markets to invest in a bold growth agenda for the UK economy”.
The agreement in principle on the EU Budget (along with some related aspects of the negotiation) announced on Friday 8th December seems sufficient to trigger further progress on trade talks. The basic premise for an agreement on the Budget is that even though the UK may leave the European Union formally in March 2019, the financial relationship cannot end without consideration of existing financial obligations, contingent liabilities and the splitting of assets and liabilities that have been agreed or formed during the period of the UK's membership of the EU.
In a post in 2015 I pointed out that government debt is not a bad thing. Here, I elaborate on that idea and I ask, and answer, a simple question: how much debt do we need? My answer: 70% of GDP is a good guess.
A long shadow has been cast over the British economy by the banking crisis of 2007-8. The economy slumped by about five per cent in 2009 and has been slow to recover. Economic growth, for example, was three per cent per year on average in the ten years before 2007 but has been little more than one per cent in the decade since. How does the aftermath of this banking crisis compare with those from Britain’s past? Is this time different?
GDP increases over time for two reasons. First, the economy produces more output because we use more labour and more capital. Second, the economy produces more output because we use better techniques over time. Traveling from London to Glasgow on a high-speed train is much faster than travelling there in a horse-drawn carriage. An increase in GDP for this second reason is called productivity growth.
Economic forecasting is not a single activity. Official forecasting and forecasting for financial market participants, for example, are different exercises. No-one knows what is going to happen but an official forecast is not supposed to indulge in flights of fancy. It represents an informed consensus about prospects, given what is already known for sure - tendencies that are in the data or the foreseeable consequences of recent events that have not yet had an impact on the data. A good model is necessary and sometimes sufficient for this type of forecasting.
When the Industrial Strategy was up for consultation earlier in the year, my colleagues in the Centre for Vocational Education Research (CVER) and I emphasised the importance of well-targeted Active Labour Market Policies (ALMP) to help with the re-training and upskilling in an economy increasingly affected by structural changes.
Much has been written about the impact that Brexit might have on the national economy. We know far less about how that impact might vary across the UK. In a recent paper published in the National Institute Economic Review , myself and colleagues at the Centre for Economic Performance (Swati Dhingra and Steve Machin) provide some preliminary answers.
UK productivity has been woefully poor since the onset of the Global Financial Crisis and has surprised forecasters to the downside. At the same time, employment has surprised to the upside and the employment rate has now reached record highs. In this blog we show that there is a long-established negative association between employment and productivity growth in the UK data, which signals a potential trade-off with far-reaching implications for public finances, Brexit and overall welfare.
In advance of Wednesday’s budget, our Research Director Roger Farmer’s blog which was first posted on 21 November 2016 is still timely and relevant. The article lists three facts about debt and deficits which are just as relevant today as they were this time last year.
The Chancellor of the Exchequer, Philip Hammond, will present his Autumn Statement to Parliament on Wednesday. In the heated debate over austerity, this piece offers three facts about debt and deficits which, I hope, will help shed light on the issues he will face.