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.
Uncertainty has gripped financial markets in the UK and around the world. The immediate response this morning has been unprecedented in the post Bretton Woods era. In the space of six hours sterling has fallen around 10 per cent against the dollar to the lowest level for 31 years. Stock market futures indicate that the equity markets will fall by around 10%. Further gyrations are expected over the coming days and weeks as market participants grapple with the implications of the results. The response so far reflects a weaker expected economic outlook at home and abroad.
The Prime Minister's foolish pledge to reduce net immigration to the tens of thousands has come back to bite him. It ensured that the key question for the referendum was whether the ability to "take control" of immigration policy was worth the risk to the UK economy from Brexit. The electorate have given their verdict.
The economic consequences of leaving the EU have naturally been a central focus of the referendum campaign. As June 23 draws near we bring together the conclusions from our research on the likely consequences, and reflect on some of the claims made.
It is difficult to overstate the damage that has been done to UK politics and policy by the Prime Minister’s foolish pledge – made against the advice of almost anyone who knew anything about the subject – to reduce net immigration to the tens of thousands. It has proved to be an act of economic self-harm; as well as unnecessarily excluding tens of thousands of skilled workers from outside the EU, we are actually losing global market share in a key export sector – higher education – where we have a strong comparative advantage. But it has also reduced trust in politics and politicians; vot
We are fortunate to have a consensus of views on the negative impact of leaving the EU. This note explains how a rational agent should "consume" this advice. Theory tends to say that we should be wary of the motivation of those who forecast at the extreme but that we should still put weight on the central case.
There is now little doubt that immigration will be the issue that will decide the referendum result. But it is danger of being decided on fiction rather than facts about its impact. We have never needed evidence about migration more. We do know a lot. We know that any statistical effects of migration on jobs and wages are very small. But statistics are often mistrusted.
In our recent report here we assessed a potential effect of Brexit on low income families. In particular, the potential changes to welfare payments that might follow after Brexit. We combined projected changes in national income with the spirit of the Government’s Fiscal Charter. Our results suggest that the effect on the incomes of the low income families could be substantial.
Is immigration from the EU pushing down the wages of British workers, especially the low paid? This has become a central theme for the Leave campaign. The Sun reported:
Do you prefer wine to whisky, but whisky to beer; and, perhaps, beer to wine? If so, you have intransitive preferences (that is, preferring A to B and B to C does not mean you necessarily prefer A to C. Rock beats scissors beats paper beats rock!). In fact.
If you boiled this referendum down to what is really being asked it is whether to stay in the Single Market, or leave and negotiate a Free Trade Agreement with the EU.
The Single Market and a Free Trade Agreement sound pretty much like the same thing – they both allow us to trade. But, in fact, they are quite different.
The Single Market is about creating a large and level playing field. The idea goes back 250 years to the great Adam Smith who said that productivity, and therefore our standard of living, depends on the size of the market.
In recent weeks there have been a number of high-profile reports on the economic consequences of a vote to leave the European Union. Among others, the OECD, HM Treasury and we, at the National Institute, have all now published estimates of what the economic landscape might look like in the immediate aftermath of a leave vote on June 23rd. ¹ NIESR’s analysis of the short and long-run impact can be found here, Baker et al (2016).
Last week's ONS publication on migration statistics threw some light on the debate, although they generated even more heat – and frankly some flat out lies, as I explained here. However, this Wednesday, we'll get a different set of numbers; this will focus not on how many migrants are entering or leaving the country, short or long-term but how many actually live and work here – which is after all most of what matters.
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 OECD’s report on the economic impact of Brexit is probably the most comprehensive and analytically rigorous produced so far (NIESR's own contribution to this debate will be published on May 10).
A large section of the public would like to see significant restrictions on free movement whatever the result of the EU referendum. Employers have a particular interest in the outcome and have joined the debate but there has been little independent assessment of their position on the issue. Our research, out today, aimed to help fill this gap through research with employers in three sectors – food and drink, hospitality and construction.
The Treasury analysis of the economic impacts of Brexit, published yesterday, has already been extensively examined.
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. The bulk of the downgrade is explained by domestic factors: a downward revision to potential productivity growth and investment volumes.
Today – after much chivvying by the UK Statistics Authority – DWP have finally replied to my Freedom of Information Request of December 4th last year. This simply asked them to explain some of the assumptions they’d made to get to the Prime Minister’s deeply dubious assertion that
We now know that, at any one time, around 40 percent of all recent European Economic Area migrants are supported by the UK benefits system
Just as the referendum debate begins in earnest, tomorrow sees the publication of ONS’ Quarterly Migration Statistics. As ever, the headline numbers for net migration will be closely scrutinised, and in particular flows from the EU. Forecasting migration numbers is even more of a mugs’ game than economic forecasting in general, so I won’t even try, but here are some things to watch out for:
Within the rules of the club, Prime Minister Cameron achieved as much as could be expected on Economic Governance from the European Council negotiations. But the gain in flexibility may turn out to be rather less significant in practice.
The agreement recognises two quite different visions for the European Union. Eurozone nations seek closer economic and political union, while UK negotiators wish to safeguard its current economic and political sovereignty.