‘Northern Powerhouse’ cities set to struggle post-Brexit as Southern economies flourish
A new economic report has revealed that Theresa May’s planned Withdrawal Agreement will have a detrimental effect on the UK economy over the next 15 years - but the impact will not be as bad as the financial crisis of 2007-2008.
The UK Powerhouse report by law firm Irwin Mitchell and the Centre for Economics and Business Research (Cebr), looks at three distinct Brexit scenarios: downside, central and upside, on the UK’s economy between now and 2034.
It assesses the impact on GDP, population, unemployment, consumer spending, business investment, exchange rates and BoE rates.
UK Powerhouse says that after 2019, unemployment will initially increase in all potential Brexit forecasts. However, even at its highest in the downside scenario, unemployment will remain 1.8 percentage points below its peak during the financial crisis.
Other key findings include:
- In the case of a ‘no-deal’ Brexit, GDP and business investment growth are both set to see sharp declines in the short term. At their lowest points, GDP is expected to contract 0.2% annually while real business investment falls by 8.4%.
- Under the central scenario, the report anticipates a more stable trajectory across most of the macro indicators as the transition period gives time to pursue an orderly Brexit.
- From 2025, the interest rate in the downside and central scenarios move in tandem as the Bank of England remains committed to normalising monetary policy.
- The report also states that southern locations such as Milton Keynes, Reading and Cambridge are expected to lead the way this year in terms of economic growth after the UK leaves the EU.
It says Milton Keynes, Reading and Cambridge will see year-on-year GVA growth in the 12 months to Q3 2019 of over 2%. However, growth in GVA, the value of goods and services produced, in Manchester is expected to be 1.4% and the figures in Leeds, Liverpool and Newcastle are expected to be even lower.
Expert Opinion“This latest report highlights the huge impact that Brexit will have on the UK’s economy. Businesses are adapting to the disruption of leaving the EU, and we are working hard to support them, but what is clear is just how different the impact will be according to which exit pathway we take.
“It’s also interesting how different locations will be affected. It is vital that the Government builds on our strengths but also recognises that it needs to support and invest in the areas which are predicted to see their local economies contract once we have left.”
Victoria Brackett - CEO of Business Legal Services & Partner
Josie Dent, Economist at Cebr said “With uncertainty still surrounding what the deal – or indeed lack of deal – between the UK and EU will be on departure day, Cebr’s economic forecasts under different scenarios highlight the impact that Brexit could have on the economy, finding that business investment is set to suffer in particular in the months following a potential no-deal Brexit. However, our models show that the UK labour market in a no-deal scenario is more resilient than some expect, as the changing nature of employment means firms can be more flexible and adjust without the need to fire employees.”
Cebr’s central forecasts are based on the assumption that the UK and the EU are able to form a compromise and sign a partial free trade agreement (FTA) covering at least the most important goods traded. It is unlikely that such an FTA can be agreed on in time, before the UK needs to leave the EU in 2019. We therefore assume that a transitional arrangement will be put in place that allows a continuation of the current relationship without any major disruptions until an FTA is agreed on around 2021. On the immigration policy, we rely on the lower immigration population estimates assuming that a visa system will be implemented for EU nationals, but that the requirements (e.g. the minimum salary, the NHS surcharge payment, the application fees etc.) would be more relaxed than they currently are for non-EU nationals requiring a visa.
The report contains two additional forecasts for different scenarios.
Upside scenario: A deal is agreed which is similar to the current PM’s deal, but with added provisions on trade which emulate current trading arrangements.
Downside scenario: UK leaves EU with no deal and no transition period.