Brexit has already cost households over £600 per year

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REUTERS/Paul Hackett

    British households are £600 worse off per year than they would have been had the UK not voted to leave the EU, according to new research. The National Institute of Economic and Social Research said the Brexit vote had caused the UK’s economic downturn and a decline in living standards. The think tank based its forecasts on a soft Brexit, but said a “disorderly, cliff-edge Brexit” was still possible.

LONDON – British households are £600 worse off per year now than they would have been had the Brexit referendum not occurred, according to a leading economic think tank.

According to the National Institute of Economic and Social Research (NIESR), it is “almost certain” that the downturn in the UK economy and the accompanying fall in living standards over the past year is the result of the Brexit vote.

Had the vote not occurred, and the economy had continued to grow at its previous rate, real household disposable income per person could be more than 2% higher than now, “worth over £600 per annum to the average household,” said NIESR Director of Macroeconomic Modelling and Forecasting Dr Garry Young.

He also said it was likely that Brexit uncertainty was having a negative impact on investment and productivity in the UK, which has stagnated.

Against a backdrop of economic and political uncertainty, NIESR revised down its forecast for UK GDP growth on Wednesday: it now expects GDP to grow by around 1.5% this year and in 2018, while global GDP is expected to grow by 3.5% this year.

In the wake of rising inflation and a weak pound, the Bank of England (BoE) is expected to raise interest rates for the first time in a decade on Thursday. The NIESR said inflation was likely to rise to a high of 3.2% in the final quarter of this year, but would drop down to 2% by the second half of 2019 as the BoE raises rates.

Young said interest rates would “not need to rise very far” in order to keep the Consumer Price Index on target.

Looking ahead to the Autumn Budget, Young said it was possible to “relax fiscal austerity a little while maintaining long-term fiscal discipline” as a means to tackle the poor productivity growth forecast by NIESR.

NIESR’s forecasting is based on a soft Brexit, which it defines as including at least a two year transition period and a negotiated free trade in place beyond 2021. Such a deal “seems closest to meeting the objectives of both sides in the negotiations and most likely to be acceptable to the EU and UK parliaments,” it said.

However, warned Young, “we do not have any great confidence that this will be the path to Brexit that will be followed.” He said there were “many possible alternatives, including the extreme possibility of a disorderly cliff-edge Brexit.”

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NIESR