Many people are talking of leaving the EU without a deal as being a disaster. Even setting aside the obviously histrionic claims that it will cause millions of deaths, normally serious commentators – and many Remain supporting friends who I’ve discussed this with – are regularly using terms such as ‘disaster’, ‘catastrophe’, ‘severe economic damage’ and ‘untold harm’.
We have of course been here before. Before the vote, we were told that a vote to Leave would, even before we actually left, trigger an immediate recession, that house prices would fall by 20% and that there would need to be an emergency budget to raise taxes and cut public services. None of this has happened. In fact, economic growth has continued, unemployment has continued to fall and wages are now rising faster than inflation.
I believe the predictions of economic catastrophe resulting from no-deal are similarly unfounded. Already we are seeing that many of the claims are not true: the EU, for example, has now put in place measures to allow planes to continue flying in the event of No Deal until formal arrangements can be made, negating the stories of grounded planes that dominated much of the summer.
There will of course be some short-term economic disruption in any meaningful Brexit. I openly acknowledged this in my 2014 paper. But even in a no-deal situation it will be relatively small, short-term and spread over 2-3 years, rather than a disaster or catastrophe.
Given the disputes about this – and the way that many Remain supporters appear to essentially ignore the failed predictions from before the vote – I have decided to make some specific, measurable predictions as a worst case scenario from a No Deal departure. These are lower bounds; it may be – indeed, I expect it to be the case – that the economy does better than this, but they represent a worst case that is clearly not a catastrophe.
Worst case predictions
- GDP growth will not fall below 0.5% in either 2019 or 2020.
- Unemployment will not rise by more than 1 percentage points.
- Any immediate consumer-facing disruption (shops running out of things, queues) will last no more than 2 weeks and will be no worse than the disruption caused in 2000 by the fuel protests.
- We will not run out of medicine.
- Planes will continue to fly.
- In March 2020, house prices will be at most 5% lower than they are now in March 2020.
- Inflation will not be above 4.5% in either 2019 or 2020.
Caveat: These predictions are invalid in the event of another major global economic crisis unconnected to Brexit, defined as at least three of the following countries – USA, Canada, Australia, France and Germany – entering recession during 2019 or 2020.
I would emphasise that I think it very likely that any economic disruption will be less than that set out above. But even in the event of the above happening, it would not constitute a disaster or a catastrophe – rather it would be a period of slower than hoped for growth.
Does anyone who believes it will be disastrous care to make some specific counter-predictions?
NB: this is not a post on which to discuss why you think we should Leave or Remain, which depends on many factors. It is specifically about the consequences of a No Deal Brexit.