Skip to content
Saturday 15 August 2026London --:--Frankfurt --:--Zurich --:--
NewslettersSearchEN · DE
MorningWire

European business, markets and politics

FTSE 100
10,750.11
-0.21%
DAX
26,440.31
+0.53%
CAC 40
8,636.80
-0.16%
STOXX 50
6,539.59
-0.09%
  • Europe
  • Markets
  • Business
  • Economy
  • Technology
  • Politics
  • Opinion
More
GermanyFranceBankingAIEnergyFintechPropertyCapital Markets
  • Germany
  • France
  • Europe
  • Markets
  • Business
  • Economy
  • Technology
  • Politics
  • Opinion
  • DE
Wednesday 23 November 2016 8:15 pm

Our timid chancellor fell for the discredited groupthink that Brexit is bad for growth

By: Graeme Leach

Add as a preferred source on Google

The latest GDP forecasts from the OBR made me laugh.

If the Autumn Statement was a court of law, and the OBR was in the dock, it wouldn’t be long until the prosecuting barrister got the OBR to admit that its numbers were an assumption in the short term and a guess thereafter.

The downward revisions in 2017 and 2018 are based on little more than assumption. As I’ve discussed a number of times in this column, the behaviour of broad money supply growth over recent months suggests that, at worst, the UK economy was flat-lining and, more likely, is strengthening not weakening. But the group-think which says Brexit equals weaker growth is alive and kicking in the OBR, hence GDP forecasts (well assumptions) of 1.4 per cent growth in 2017 and 1.7 per cent growth in 2018.

Read more: Brexit: Unequivocally good for the UK economy in the short and long term

Even though the idea that Brexit means downturn has been thoroughly discredited over recent months, we’re expected to believe it will still happen over the next two years, because of lower trade flows, lower investment and lower net inward migration. The problem with this view is that, when you look at the underlying data used by the OBR, business investment as a proportion of GDP is flat. It’s not collapsing.

The “2 per cent forever” growth forecasts for 2019 onwards are based on a complete blank as to where the economy will be by then. The obvious get-out is to use estimates of underlying potential output growth and hope for the best, which is exactly what the OBR has done.

Forecasts from 2019 onwards are about as clear as a sandstorm. History teaches that the error on the public finance projections is around 1 per cent of GDP per annum i.e. 1 per cent a year from now, 2 per cent after two years etc. In other words, by 2020-21, the public finances could be 5 per cent of GDP higher or lower than projected today, with around half the gap due to GDP error and the other half due to errors in the projections of the public finances.

Read more: Hammond was right to focus on productivity as key to post-Brexit success

The real structural problem facing the UK economy is not Brexit, but the size of the state. It’s now 10 years since the global financial crisis struck the economy and yet in 2016-17 we’re likely to have the largest deficit – at 3.5 per cent of GDP – of all the G7 economies, with the exception of Japan. The new chancellor has relaxed the fiscal rules with regard to the structural deficit and public debt and does not appear inclined to push the public spending to GDP ratio sharply lower.

He could have given out a strong signal that Britain is open to the world for business, by announcing a commitment, phased in over the next decade, to reduce the rate of Corporation Tax to 10 per cent. A commitment to 15 per cent five years from now would have been a big step forward as well.

Read more: Hammond has gifted Britain a third decade of gross fiscal irresponsibility

Unfortunately, he’s looking down the wrong end of the telescope. Instead of looking at the opportunity to combine Brexit with vigorous supply-side reform, we’ve had the same old story that Brexit will undermine growth and tax receipts and so there’s no room for manoeuvre.

The good thing in the Autumn Statement was the announcement of improvements to infrastructure investment, but even here there are problems. There are literally thousands of small infrastructure projects which could make a big difference to congestion on our roads, but resources remain skewed towards big ticket infrastructure projects.

Share this article

  • Facebook
  • X
  • LinkedIn
  • WhatsApp
  • Email

Similarly tagged content:

Sections

  • Opinion

Categories

  • Opinion

Trending Articles

  • Revolut takes flight with launch of new airport lounges

  • Grandparents fund university degrees to avoid inheritance tax net

  • Revolut chatbot goes rogue by charging users to cancel subscription

  • Brompton Bicycle sues former adviser for ‘professional negligence’

  • As It Happened: Stocks dip as oil’s ‘slowing demand’ in focus; Iran threatens to extend war

More from Morning Wire

  • OBR misery makes tax rises inevitable

    Opinion
    Treasury Department building with government bonds signage, representing financial management and bond issuance responsibi...
  • Pension pressure to help swell UK debt to three times size of economy

    Economics
    Two older women exercising at an outdoor gym in sunshine
  • Andy Burnham is on course to rack up the second highest debt interest bill on record

    Opinion
    UK National Debt Clock showing £3 trillion, with Big Ben and the Union Jack in the background.
  • Government debt repayment ‘could rise to half’ of total taxes

    Economics
    OBR chiefs told the Treasury Select Committee that a higher tax burden could stifle growth.
  • The devastating prognosis for the UK’s public finances

    Economic News/Analysis
    Dramatic cloud formation over Westminster, capturing a striking skyline with iconic landmarks under a moody sky.
  • Warning for John Healey as key fiscal target missed

    Economics
    Labour MP John Healey in a professional headshot, likely for news or political profile.
  • Singapore on Thames or the Sick Man of Europe?: The Economics of Brexit Ten Years from the Referendum 

    Opinion
    UK-EU Brexit negotiations meeting with officials discussing trade agreements and policy impacts in a formal conference room
  • The pensions triple lock is a travesty. Our politicians must fess up

    Opinion
    Young people face the risk of failing to save enough in their pension
MorningWire

Independent European business, markets and political news for decision-makers.

Morning Briefing

Europe

  • Germany
  • France
  • Europe
  • UK & Ireland

Business

  • Markets
  • Banking
  • Technology
  • Energy
  • Property
  • Fintech

Editorial

  • Opinion
  • Editorial Policy
  • Corrections
  • Contact

Company

  • About Morning Wire
  • Privacy Policy
  • Terms of Use
  • Cookie Policy
© 2026 Morning Wire Ltd · Published by Morning Wire Media, Bahnhofstrasse 65, 8001 Zürich, Switzerland
Privacy · Terms · Cookies · Facebook