Press Release - Thursday 21st April 2016
True long-run costs of Brexit likely to be higher than Treasury estimates
Overly cautious assumptions in the Treasury's recent report on the long-run consequences for the UK economy of leaving the European Union (EU) mean that it has probably underestimated the economic costs. That is one of the conclusions in a commentary on the Treasury's analysis published today by the Centre for Economic Performance (CEP) at the London School of Economics.
Forecasting the economic consequences of Brexit is a difficult challenge and all estimates will be subject to a degree of uncertainty. But the CEP research team's overall assessment is that the Treasury Report is a credible analysis, which, for the most part, uses the best available estimation methods.
The Report's headline forecast that Brexit would reduce long-run UK GDP by 6.2% in the Treasury's central case of a Canadian-style negotiated bilateral trade deal is broadly consistent with CEP's previous work and many other independent estimates. For example, CEP's dynamic estimates of the cost of Brexit indicate a GDP loss of 6.3% to 9.5% in the case of the UK moving from the EU to European Free Trade Association. Treasury estimates are at the lower end of this range.
CEP director Professor John Van Reenen concludes:
"The Treasury's findings reinforce the academic and business consensus that Brexit would make the UK significantly poorer. The Report is a serious contribution to the debate."
Swati Dhingra said:
"The Treasury Report looks at the realistic options the UK will face after Brexit and the cost of each. It takes a conservative approach to the potential costs."
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