At the height of the EU Referendum campaign, George Osborne's Treasury produced a report predicting that even the act of voting to Leave the EU would cause immediate economic disaster. Even arch-Remainer Kenneth Clarke has poured scorn on these Treasury figures.
There is a problem at the root of Project Fear - it is an attempt to argue that a marginal increase in cost of trade with the EU trumps all other concerns (political & economic), even when exports to the EU account for just 10% of UK economy. This is exactly the same argument made for the euro - "10% of our economy depends on EU, 3m jobs at risk" . Allegedly, the UK retaining the £ would result in the City & UK car industry decamping en-masse to the EU to escape the cost of currency exchange in UK-EU. Some 15-plus years on, it is clear that these economic forecasts were pure bunkum.
Of course, any forecast over a timescale of 15-years will almost certainly be proved wrong. Yet, in recent weeks we have seen leaked Treasury forecasts, suggesting UK GDP could be 8% lower over a 15 year timescale due to Brexit, paraded as "facts" by Remain supporters.
It should also be noted that this forecast of 8% does not imply a recession, rather it is a forecast of slower growth, i.e. 1.5% per annum rather than 2% per annum in coming decade or so, so an economy worth ~£2tn at start of a year will only increase by ~£30bn instead of ~£40bn over that year, so that each year economic activity is ~0.5% GDP or £10bn lower than the counter-factual scenario. Interestingly, UK membership of the EU also costs ~0.5% net per annum, i.e. ~£10bn economic activity taken out of ~£2tn UK economy and diverted to activity in Brussels or other EU member states.
It's not clear whether the Treasury forecasts have allowed for the gain from ending UK's net EU contributions in their forecasts. But it is interesting to compare the Remain campaign description of these 0.5% per annum contributions as a small price to pay for the economic benefits we get in return (as in a £70bn per annum trade deficit with the EU).
Given UK exports to the EU account for just 10% of UK GDP, the forecast 8% loss of GDP is equivalent to losing 80% of our exports to the EU. While there will be a marginal increase in cost of trade with the EU, but this does not mean that UK exports to the EU will effectively cease - just as marginal costs arising from rejecting the euro did not mean the loss of 3 million jobs. By contrast, a 2017 paper by World Bank & UNCTAD economists suggested UK exports are "price inelastic" and that in the event of a No Deal scenario, UK exports to the EU would drop by no more than 2% - a negligible impact.
Historical data does not support this assumption that EU membership has been uniquely beneficial:
- In 2012, to commemorate 20 years of the Single Market and removal of internal customs borders, the EU Commission published a report claiming a 2% GDP gain (averaged across the member states). Even that figure is inflated, as the economic downturn from 2008 onwards was ignored.
- A similar study by European (and generally pro-EU) think tank Bertelsman concluded that the UK had only gained 1% GDP (with Germany the winner with a gain of 2.3% GDP).
- In the same period 1992-2012, the UK economy grew by 67%. The introduction of the Single Market & removal of Customs Borders within the EU barely registers.
Economies and markets will always adjust to shocks such as Brexit. Trade and commercial activity will divert to the domestic economy and markets with the Rest of the World. In fact, there is a strong case that the UK needs to pivot away from an EU-centric economy:
- The EU's share of the global economy is in decline (having halved from a high of 30%, less once UK leaves).
- As even the EU Commission concedes, 90% of global growth will be outside the EU in coming decades.
- The share of UK exports to the EU (as opposed to the rest of the world) has steadily declined from a high of 55% at the turn of the century to 43% today, less if the Rotterdam/Antwerp effects are taken into account.
- UK trade with the EU has shown a persistent and widening trade deficit, whereas UK trade with the Rest of the World is broadly in balance.
All of which is a long way round to saying overblown economic scare stories, which have no foundation, take no account of other gains, ignore the 90% of economy that does not export to the EU - are pure distraction. As we well know, the decision to leave the EU was to restore national self-Government & reject a future as a mere province in the Brussels bureaucratic empire. The whole sorry story of our entanglement with the EU has been attempts to deny the true aims of the EU coupled with Project Fear (right back to 1975 Referendum). June 23rd 2016 was the end of that.