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UK & EU Economies post Brexit


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The press release from the IFS and full report can be found on the link to the IFS website

Brexit options: budget contributions pale against wider trade and economic impacts

The UK public has voted to leave the European Union. But the economic choices that still face us are very big. Perhaps the most important is the choice over whether the UK retains membership of the single market. Despite the efforts of some to confuse the issue “membership of” the single market is entirely different to “access to” it. Membership may come at the cost of continuing to contribute to the EU Budget and accepting future regulations designed in the EU. Those costs are salient and the benefits of membership are diffuse – but the financial benefits are real and, at the moment at least, likely to outweigh the financial costs.

A new report by IFS researchers, funded by the ESRC and published today: The EU Single Market: The Value of Membership versus Access to the UK looks at what membership of the single market brings in terms of the potential benefits for trade, especially in services, and the likely obligations. It also considers the potential for new trade deals beyond the EU and the economic and public finance implications of potential options.

The report finds:

Single Market Access is virtually meaningless as a concept. Any country in the World Trade Organisation (WTO) – from Afghanistan to Zimbabwe – has ‘access’ to the EU as an export destination. Single Market ‘membership’ by contrast involves elimination of barriers to trade in a way that no existing trade deal, customs union or free trade area achieves. In particular it means reducing “non-tariff” barriers like licensing and other regulatory constraints to supplying goods or services. These sorts of barriers have become relatively more important to trade than tariffs (taxes on trade), and especially so for services.

UK service exports are especially important. They accounted for 31% of all exports in 1999 and 44% of exports in 2015. The UK runs a significant trade surplus in services and the EU is the UK’s largest service export destination, accounting for 40% of service exports whereas emerging economies such as Brazil, Russia, India and China together account for less than 5%.

Single Market Membership is particularly important for financial services. So-called ‘passporting rights’ mean that UK-based financial firms can service EU businesses and customers directly. To maintain these rights would likely require membership of the European Economic Area (EEA). But that would come at the potentially considerable cost of submitting to future regulations designed in the EU without input from the UK. The UK may have to make some very difficult choices between the benefits from passporting and the costs of submitting to external imposed regulation.

New trade deals unlikely to compensate fully for EU trade. The EU accounts for 44% of our exports and 39% of our service exports. If the UK we are able to access the European Free Trade Association’s existing deals they would cover over 10% of UK exports which is more than the EU's current third-country deals. Countries such as China and India together account for 4.6% of all exports, and 2.6% on services. Even small proportionate losses in trade (or lost growth in trade) with the EU would require quite dramatic – and probably implausible –increases in trade with such countries.

Single Market membership could be worth 4% on GDP relative to reliance on WTO terms. Free trade agreements short of single market membership would have economic effects intermediate between these options.

Direct budget impacts are secondary relative to overall economic outlook. No large country currently enjoys membership of the Single Market without free movement of people alongside a financial contribution. While leaving the EU will free the UK from having to make a budgetary contribution, loss of trade could depress tax receipts by a larger amount.

Ian Mitchell, Research Associate at the IFS and an author of the report said:

“From an economic point of view we still face some very big choices indeed in terms of our future relationship with the EU. There is all the difference in the world between ‘access to’ and ‘membership of’ the single market. Membership is likely to offer significant economic benefits particularly for trade in services. But outside the EU, single market membership also comes at the cost of accepting future regulations designed in the EU without UK input. This may be seriously problematic for some parts of the financial services sector. Choices in these domains will most likely be far more important than any deal on budget contributions.”

http://www.ifs.org.uk/publications/8413

Edited by knocker
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I do wonder if those attacking the judges in this case (and the Mail headline is particularly ludicrous and borderline dangerous for those judges) realise that had the government legal team, itself ma

Good Morning everyone from a horrible drizzly Essex. Yesterday my elderly uncle came to visit us for dinner and brought with him the Sunday Express. As I read through it I found it farcial in it'

And I am ashamed of how xenophobia and arrogance has developed in our country - what has happened since the days when we could rightfully hold ourselves up as an example to the rest of the world?

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6 hours ago, coldcomfort said:

Not sure I understand what this has to do with my post.

 

The bit of your post were you say 

Quote

on the other side complete unsubstantiated and unfounded claims like every family will be £4.3k worse off come 2020 if we Brexit would never have been made. 

It's looking like a reality unless the pound strengthens soon, as the import losses made will filter down and rise shop prices, so although everyone will have the same money it will buy less. 

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Not good news.

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http://www.bbc.co.uk/news/business-37031793

Return on UK government bonds turns negative

The return on some UK government debt turned negative after the Bank of England missed its target in a new bond buying operation.

The Bank had offered to buy government bonds, or gilts, as part of its new quantitative easing (QE) programme to stimulate the economy.

But the bank fell £52m short of its £1.17bn target when it failed to find enough sellers.

That has driven up prices and pushed down the return or yield, to investors...

...The British economy is facing a huge potential problem - a liquidity trap. It may sound like something under your kitchen sink but it's standing in the way of an economic recovery.

The Bank of England is so worried about the shock of Brexit to economic growth that it is cutting interest rates and trying to pump money into the economy, by buying billions of pounds worth of gilts. Gilts are how the government borrows money and are seen as a very safe investment.

By buying them, the Bank of England hopes that it will encourage the sellers to spend the money they have raised in ways that boost growth; building new factories or spending in shops for example.

But as the Bank of England cuts interest rates, pension funds and other investors search for something that pays a reasonable level of interest - and those are gilts. The lower interest rates go, the more they want to hold on to these safe and rewarding gilts.

This is the liquidity trap, the more the Bank of England tries to pump money or liquidity into the economy, the more investors want to put it somewhere safe, boring and unproductive.

 

Edited by scottish skier
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Someone quite rightly posted not long ago about the impact of the falling pound on increasing costs on purchasing within the NHS.

Below is some news today about Defence spending and the adverse exchange rate.

(I also recall posts about the adverse exchange rate not having much of an impact on the ordinary man in the street who didn't travel abroad.... :nonono:)

https://www.politicshome.com/news/uk/defence/defence-funding/news/78035/defence-expert-forecasts-perfect-storm-military-spending

Ministry of Defence 'facing extra £700m costs post Brexit':

Prof Trevor Taylor, from the RUSI think tank, told BBC Radio 4's The World at One that the extra costs could lead to a "budget black hole", presenting a serious problem for the UK's defence stance.

Prof Taylor said the UK paid the US about $10 billion a year for defence products.

.

 

Edited by kar999
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MOD budget could be cut by  £700 million due the exchange rate.

Thousands of our brave men and women will pay a large price for Brexit.

The irony of course is that a majority of existing and ex squaddies voted leave.

 

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1 hour ago, kar999 said:

Someone quite rightly posted not long ago about the impact of the falling pound on increasing costs on purchasing within the NHS.

Below is some news today about Defence spending and the adverse exchange rate.

(I also recall posts about the adverse exchange rate not having much of an impact on the ordinary man in the street who didn't travel abroad.... :nonono:)

https://www.politicshome.com/news/uk/defence/defence-funding/news/78035/defence-expert-forecasts-perfect-storm-military-spending

Ministry of Defence 'facing extra £700m costs post Brexit':

Prof Trevor Taylor, from the RUSI think tank, told BBC Radio 4's The World at One that the extra costs could lead to a "budget black hole", presenting a serious problem for the UK's defence stance.

Prof Taylor said the UK paid the US about $10 billion a year for defence products.

.

 

Hello Kar999,

It was me that posted it. An awful lot of supplies used within the NHS are imported from places as diverse as Mexico to the far east. These increased costs caused by a falling piund will start kicking in soon,, if they have not already as stocks have to be replenished.

The same will also apply to supplies for Defence and any other public sector body that is reliant on imports.

Local government, which is already suffering due to massive cuts over recent years, will not be immune either. Looking after council assets such as buildings will cost more, as most materials are imported.

Real problems are now starting to unravel within the economy.

 

Kind Regards

Dave 

 

 

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1 hour ago, mountain shadow said:

MOD budget could be cut by  £700 million due the exchange rate.

Thousands of our brave men and women will pay a large price for Brexit.

The irony of course is that a majority of existing and ex squaddies voted leave.

 

Was listening to 'Brexit street' on Radio 4 on the commute home.

Interviews with folk from an area in NE England that voted leave.

JHC these people really believe that their leave vote was needed to help the NE. They blame the N/S divide on Europe rather than the people that created it; the government in London. It's the EU which has been pumping money into such areas in the form of regional development funding.

Madness. I did feel sorry for them because the NE has been crapped all over by London for decades, just like Scotland. How come in Scotland we know where the problem really lies?

Truly turkeys unknowingly voting for Christmas. £ fall means NHS and councils have a huge sudden budget cut already, and that's before any actual brexit. It's places like the NE where the coming economic malaise will hit hardest.

What a sorry state of affairs.

Edited by scottish skier
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2 hours ago, mountain shadow said:

MOD budget could be cut by  £700 million due the exchange rate.

Thousands of our brave men and women will pay a large price for Brexit.

The irony of course is that a majority of existing and ex squaddies voted leave.

 

:yahoo:

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I can't see MOD procurement changing from $10 billion to non-US$ denominated purchases anytime soon. So unless we stop buying so much equipment or the pound miraculously strengthens then it's not could but will.

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59 minutes ago, kar999 said:

I can't see MOD procurement changing from $10 billion to non-US$ denominated purchases anytime soon. So unless we stop buying so much equipment or the pound miraculously strengthens then it's not could but will.

Aye, it's overseas purchasing budget has been slashed by 10% by brexit. There is no question about that at all.

I see the slight recovery in £ value has gone; we're back to immediate crash lows again.

Edited by scottish skier
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14 minutes ago, Ed Stone said:

Well kar, if there's one thing you can be sure of, it's this: the Brexiteers will find a way, any way they can, of avoiding any responsibility...It ain't me, Guv!

In reply to the above - I've lost count of the number of times I have heard that Pete.

Re the below:

The remainers have always spoken of reform within the EU - this man talks a lot of sense - a passionate straight talking 'guy' giving them what for - I agree with him wholeheartedly.

He follows with a speech directed towards the Greek Prime Minister who is present who also replies - as I see it this part of pressure being put on the elite of the EU and the applause indicates approval.

The third relates to a UKIP member who really does not do the British any favours at all.

 

Edited by mike Meehan
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4 hours ago, mountain shadow said:

MOD budget could be cut by  £700 million due the exchange rate.

Thousands of our brave men and women will pay a large price for Brexit.

The irony of course is that a majority of existing and ex squaddies voted leave.

 

 

2 hours ago, coldcomfort said:

:yahoo:

Why are you so happy about CC?

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4 hours ago, mountain shadow said:

MOD budget could be cut by  £700 million due the exchange rate.

Thousands of our brave men and women will pay a large price for Brexit.

The irony of course is that a majority of existing and ex squaddies voted leave.

 

Nothing new there, we have always been cheapskates when it comes to funding our Armed Forces. You can go right back to WW2  and see that our blokes kit compared to that of the German Army was cr..p . Their tanks in Normandy were knocking ours out  at 2000 metres before we could even get within range.They, and the Americans were equipped with semi automatic rifles, whilst we had to make do with the bolt action.303 introduced in 1903. I can give as many examples as you like.  

Edited by 78/79
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1 hour ago, mountain shadow said:

Remember, for most Brexiters it was all about immigration, most wouldn't have had a clue about the financial impact. 

To be completely honest I was originally in favour of leave as the EU now bears little resemblance to the Common Market I voted to join in 1974. 

I was, and still am, against the bureaucratic federalistic undemocratic gravy train that the EU has become where clearly one size fits all across 27 nations in terms of economic, cultural and political terms is never going to work to everyone's satisfaction.

HOWEVER.. I voted Remain for the same reasons as I voted to join 40+ years ago. Financial.

I didn't need to listen to project fear emanating from both camps, sometimes in equal measures. Having worked in finance and manufacturing all my career the potential chaotic economic outcome short to medium term seemed obvious to me.

Additionally, nearing retirement I had a vested interest not to see my hard earned finances going down the toilet and I can't afford to play the long game waiting for Britain to become Great again in splendid isolation... (if it ever does).

Edit. I posted the above just to show that not all wrinklies voted leave :)

Edited by kar999
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Despite people latching onto all the bad news and using as evidence of their own opinion i have seen nothing that i did not expect would happen and am prepared to accept the harder short term impact for the potential of a future outside the EU. 

Nothing yet really makes me regret my decision. 

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1 hour ago, mountain shadow said:

Remember, for most Brexiters it was all about immigration, most wouldn't have had a clue about the financial impact. 

And those that did used the slogan short term pain for long term gain, I don't see anything short term, we haven't even triggered article 50 yet, when we do ouch.

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2 hours ago, summer blizzard said:

Despite people latching onto all the bad news and using as evidence of their own opinion i have seen nothing that i did not expect would happen and am prepared to accept the harder short term impact for the potential of a future outside the EU. 

Nothing yet really makes me regret my decision. 

That may be so but if you count the 16 million+ who voted remain and a million plus ex pats living in the EU who would have liked a vote but were denied it on an arbitrary limit probably did regret the decision of yours and many more like you.

I am sure that there are quite a number who voted leave but now realising that the fabled promises were not immediate are now beginning to regret theirs.

Should the latter group have been allowed to vote that would have made it just about level pegging in my view but the vote should really have been about trying to decide what people though best for the country as whole, probably many did but there were also many who voted for their own vested interests on the basis of a campaign run by people who really did have vested interests.

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16 hours ago, alexisj9 said:

The bit of your post were you say 

It's looking like a reality unless the pound strengthens soon, as the import losses made will filter down and rise shop prices, so although everyone will have the same money it will buy less. 

Each family may be worse off by 2020 to some degree (or many be better off), but the point is Alexis £4300 per annum was a completely arbitrary figure plucked out of thin air....and we all know how Remaineers loved to cry about arbitrary figures plucked out of thin air don't we, especially when on the side of a bus...:yahoo:  

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16 hours ago, kar999 said:

Someone quite rightly posted not long ago about the impact of the falling pound on increasing costs on purchasing within the NHS.

Below is some news today about Defence spending and the adverse exchange rate.

(I also recall posts about the adverse exchange rate not having much of an impact on the ordinary man in the street who didn't travel abroad.... :nonono:)

https://www.politicshome.com/news/uk/defence/defence-funding/news/78035/defence-expert-forecasts-perfect-storm-military-spending

Ministry of Defence 'facing extra £700m costs post Brexit':

Prof Trevor Taylor, from the RUSI think tank, told BBC Radio 4's The World at One that the extra costs could lead to a "budget black hole", presenting a serious problem for the UK's defence stance.

Prof Taylor said the UK paid the US about $10 billion a year for defence products.

.

 

Must be some sort of trade deal in place with the US already then.

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11 hours ago, mike Meehan said:

 

Why are you so happy about CC?

Because that report is nothing more than further pointless scaremongering designed to keep Remaineers buoyed up and ready to fight on in a battle that can't and won't win. Mind you just like winning, losing can also become a habit, so crack on. 

Edited by coldcomfort
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21 minutes ago, coldcomfort said:

Mind you just like winning, losing can also become a habit, so crack on. 

So do you consider that this outcome is the result of a winning ploy?

"In the EU case, there are at least 27 other parties involved, each with a veto. The Bloomberg survey makes clear that post-Brexit negotiations will be a game of 27-dimensional chess. Theresa May won’t be able simply to stitch together a deal with Angela Merkel. She’ll have to accommodate, say, Spain’s wish for joint sovereignty over Gibraltar or Denmark’s desire for reciprocal fishing access. The eastern European states will demand that Britain make a financial contribution to the EU in return for privileged single market access. And on it will go, times 27.

The irony is that, once this process begins in earnest, once the horsetrading and haggling gets under way, we’ll begin to see what the best possible deal would look like. We’ll have a sense of the ideal arrangement, one that would give us free access to the single market, a say over the rules and a sharply reduced membership fee. We’ll cross our fingers and hope our European neighbours are generous enough to grant it. What arrangement will it be? Why, the one we had in our hands", right up until 23 June 2016.

https://www.theguardian.com/commentisfree/2016/aug/10/europe-brexit-negotiations-eu-leave

Edited by ciel
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