Press Release – ‘Monetary and fiscal policy as the Brexit countdown begins’ - NIESR analysis ahead of the Spring Statement
NIESR’s Director Professor Jagjit Chadha will present the latest analysis by the National Institute of the impact of Brexit uncertainty on the forthcoming Spring Statement at an event at NIESR today.
“Brexit Countdown: Scenarios and Consequences”, organised jointly with the Society of Professional Economists, will also include presentations by Dr Thomas Sampson of LSE and Dr Gemma Tetlow, Chief Economist at the Institute for Government and will be chaired by Newsnight Economics Editor Ben Chu.
Jagjit Chadha will say: “Political deadlock and constitutional crisis does not necessarily spell economic doom. It is though a severe test. The economy at full employment is in desperate need of policy to enhance productive capacity but remains suspended, waiting for the outcome of a tortuous EU Exit process. Even now no-one can be quite sure what will happen in terms the UK’s trading relationship with the EU and so plans are delayed and years are lost.”
Prof Chadha will point out that output is now some 2% lower than would otherwise have been as a result of the EU referendum vote, which is in line with the forecasts of the Institute in May 2016. The implication of this, and the continuing uncertainty, means that “regardless of the path EU Exit will take, planned spending will have to increase in order to accommodate the needs of an ageing population and to maintain the quality of public services. Despite the “fiscal rules” this drift in expenditure happened last year and will happen again this year.”
How should the Chancellor approach fiscal policy at this time? Prof Chadha will suggest that:
- Brexit uncertainty is taking its toll on the economy, with investment growth weaker than otherwise and depressed real incomes;
- To the extent that uncertainty delayed investment and firms met demand by hiring more workers it temporarily provides the Chancellor with his ‘very own Brexit dividend’ in the form of lower government spending and higher revenue;
- While the long-run economic impact of Brexit depends on the type of trading relationship with the EU, there is room for monetary and fiscal policy to help the economy adjust, at the cost of higher inflation and higher public deficits;
- Weak productivity growth, an ageing population, the need for improved public services and the risk of an adverse Brexit outcome mean public expenditure will have to rise above current plans and throws into doubt the existing tax regime and fiscal rules.
Prof Chadha will conclude: “The Spring Statement ought to provide some soothing accompaniment to the cacophony of EU Exit but runs the risk of neither saying enough nor addressing genuine economic concerns as decision-making once again gets crowded out by political calculus.”
Notes for editors:
The full text of the Institute’s pre-Spring Statement analysis: “Political Cacophony and the Spring Statement” is available here. It is co-authored by Jagjit S. Chadha, Arno Hantzsche, Amit Kara and Garry Young.
For any questions regarding the paper or to arrange an interview with professor Chadha please contact the NIESR Press Office:
p.buonadonna [at] niesr.ac.uk
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