Relax; Brexit UK effect seen as chronic, not crippling

london — The UK economy may be paying for Brexit for a long time to come.

The strength of the expansion since the vote to leave the European Union hasn’t allayed concern about how the decision will filter through the economy over the coming years. It won’t mean Armageddon, but the broad consensus among economists — whose predictions about the initial fallout were largely too pessimistic — is for a prolonged effect that will ultimately diminish output, jobs and wealth to some degree.

For now, the economy continues to boom, with figures on Tuesday showing growth of 0.7 per cent in the fourth quarter of 2016, the fastest in a year and revised up from 0.6 per cent.

As analysts gauge the longer term, issues in the mix range from the fallout on trade, investment and London’s financial district to knock-on effects on hiring, inflation and demand.

There may also be offsetting factors to take into account, including if any of the lost benefits of EU membership can be replicated or replaced via other deals.

With Prime Minister Theresa May indicating she’s pursuing a hard Brexit — cutting the UK from the bloc’s single market for greater control over migration — scenarios with higher economic costs have become more likely. Among the most pessimistic is one from MIT forecasting a loss of as much as 9.5 per cent of income.

“Trade, openness and migration are the big issues,” said Andrew Goodwin, an economist at Oxford Economics. “We’d expect the sort of deal the UK is going for to result in some degree of trade destruction. And if we’re talking about reducing the level of migration, that’s likely to result in growth prospects being weaker.”

Even with Brexit drag, Bloomberg Intelligence and PricewaterhouseCoopers note the UK will still outperform most other major eurozone economies. Others are even more optimistic, with the Economists for Free Trade group seeing a boost from an “optimal” policy of scrapping import tariffs.

How it all plays out will also influence Bank of England policy, with Governor Mark Carney saying on Tuesday that the various Brexit scenarios will help determine when interest rates rise and how fast.

Rounding up some of the assessments shows the variety of potential outcomes from leaving the EU and losing free access to the world’s largest open trading bloc. The UK’s potential growth — how fast it could grow using all resources most efficiently — could also be undermined. The selection of forecasts here are all based on different assumptions, reflecting the multiple Brexit options.

While the more negative views may be in the majority, they’re unlikely to derail May’s government from its current path.