Economic effects of Brexit

• As part of its review of financial services after Brexit, the Committee took evidence from the financial regulators, insurers, bankers, asset managers, academics, representatives from industry bodies and the Economic Secretary to the Treasury, John Glen MP.
• Evidence gathered by the Committee emphasises the need to stabilise the future UK-EU relationship in financial services whilst also making the most of the opportunities after Brexit.
• The Government should delegate more powers to the financial regulators after Brexit, to give the UKs regulatory regime more flexibility and increase its ability to respond to changes.
• The UK should take a leadership role in promoting international cooperation in financial services after Brexit by promoting global standards.

• The "Brexit: Scenarios Update" report has been added to ResearchAndMarkets.com's offering.
• Since the April extension of the UK's timeline for exiting the EU to October 31, 2019, MNCs have been enhancing and carefully updating their contingency plan assumptions.
• The author believes that a downside in Brexit negotiations is increasingly likely, and that any short- or long-term Brexit outcome will be accompanied by increased market and pound volatility and prolonged business uncertainty in 2019 and beyond.
• This report provides multinationals with updated scenarios on the UK's political, economic, and overall Brexit outlook to help manage short- and long-term assumptions and planning.

• The "Impact of Brexit on Banking and Fintech - Top 5 Predictions" report has been added to ResearchAndMarkets.com's offering.
• The report details the timeline of key developments in Brexit and an analysis of the impact of eight potential outcomes on areas ranging from free trade to Irish Backstop.
• The report further documents its Top 5 predictions on the impact of Brexit on banks and FinTechs, as well as suggests key focus areas financial institutions should address in order to survive the consequences of Brexit.
• The report analyses the potential outcomes of Brexit and its impact on the trade of services.

What are the ways in which Brexit could affect the economy? And what do studies of the potential impact of Brexit on the economy over the short- and long-term show? This briefing answers these questions and provides summaries of the Government's and Bank of England's economic analyses of Brexit, including the assumptions and scenarios used.

Future trade arrangements are important

• The UKs future trading arrangements with the EU the UKs largest trading partner and the rest of the world will likely play a crucial role in determining Brexits economic impact.
• The degree to which this is the case is uncertain and will depend on the shape of the future trade relationship, yet to be determined.

Government’s long-term economic analysis

• The five scenarios are:
  • Government’s proposed deal (‘Chequers’) – based on the Government’s July 2018 White Paper and its preferred option. In this scenario, the UK is essentially in a customs union with the EU. Barriers to trade with the EU are fairly limited.
  • ‘Chequers minus’– similar to the ‘Chequers proposal’ but incorporating greater trade barriers with the EU. Many commentators argue this is more in line with the parameters of the Political Declaration and therefore a more realistic outcome of a future UK-EU trade deal.
  • EEA (European Economic Area) – where the UK is a member of the EEA inside the Single Market (including free movement of people) but not in a customs union with the EU.
  • Free Trade Agreement(FTA)– a scenario where the UK and EU sign a free trade agreement. It is assumed there are no tariffs on goods and non-tariff barriers are equal to those in an average trade deal with the EU.
  • No deal– the future UK-EU trade relationship is based on World Trade Organisation (WTO) rules, rather than a bilateral trade deal.
• The Government do not use the terms ‘Chequers’ or ‘Chequers Minus’, instead referring to a ‘White Paper’ scenario. The Government assessed all five scenarios listed above with two different migration assumptions, neither of which is Government policy:
  • No change to rules– this assumes the current projected flow of EEA workers with no policy changes.
  • Zero net migration from EEA– assumes that there is no net migration of workers from EEA countries.
• Ahead of the meaningful vote in the House of Commons on whether to approve the Withdrawal Agreement and Political Declaration, the Government published its analysis of the long-term impact of Brexit on the economy on 28 November 2018.
• This is not a forecast as such as it doesnt look at all the factors that affect GDP, just those related to Brexit.

Impact on GDP

• The main outcome of the analysis is that the higher the barriers to UK-EU trade, the lower GDP is.
• The results show that of the five Brexit scenarios modelled, the Chequers outcome leads to the lowest long-term negative impact on GDP, compared with staying in the EU.

Public finances

• Under each scenario, the Government estimates that the deficit will be larger compared with staying in the EU in the long-term.
• The Governments analysis finds that in each scenario assuming lower migration leads to a higher deficit.

Regional analysis

• The Governments analysis models the long-term impact of Brexit on the GDP of the regions and countries of the UK.
• For all scenarios, like in the UK analysis, the no-deal scenario results in the largest negative impact on economic output, while the Chequers scenario results in a relatively small negative impact compared with staying in the EU (apart from in Scotland where there is no difference).

Bank of England’s short-term economic analysis

• Under the two “deal” scenarios:
  • In the “close relationship” scenario GDP would be 1¾% higher by end-2023 compared to current Bank forecasts.
  • In the “less close relationship” scenario GDP would be ¾% lower by end-2023 compared to current Bank forecasts.
• Under the two “no-deal” scenarios:
  • In the “disruptive no-deal Brexit”scenarioGDP would be 4¾% lower by end-2023 compared to current Bank forecasts.
  • In the “disruptive no-deal Brexit”scenario GDP would be 7¾% lower by end-2023 compared to current Bank forecasts.
• In response to a request from the Commons Treasury Select Committee, the Bank of England published analysis of different short-term scenarios relating to Brexit on 28 November 2018.
• GDP is also compared to a pre-referendum trend path of GDP estimated by the Bank.