UK Treasury may study closer EU ties as Labour weighs trade options
Britain's debate over its post-Brexit economic model is set to intensify as Labour considers options for a closer relationship with the EU. Government and Labour figures say the Treasury is likely to be asked later this year to assess the economic impact of alternatives ranging from a customs union to renewed single market membership.
Highlights
- The Office for Budget Responsibility estimates Brexit reduces UK long-run productivity by 4 per cent versus remaining in the EU.
- Goldman Sachs analysts project that a customs union could boost UK GDP by about 1 per cent, while single market membership could add 2–5 per cent.
- New Persuasion/IPPR polling shows 52 per cent of UK voters support rejoining the EU, with 29 per cent preferring to remain outside.
Economic estimates and political fallout
According to Financial Times, forecasts of Brexit's long-term cost remain contested, and any estimate of gains from reducing trade barriers with the EU is also likely to face heavy scrutiny. The Treasury was accused by the Leave campaign in 2016 of orchestrating "Project Fear" with warnings of recession, NHS cuts and income tax rises if voters backed leaving the bloc.Russ Mould, investment director at AJ Bell, says in a paper published earlier this year that the Treasury's short-term shock scenarios did not prove totally accurate and some forecasts were plainly wrong, although some concerns, particularly over sterling, did materialise. Since the referendum, the Office for Budget Responsibility has judged that a worsened trading relationship reduces the UK's long-run productivity by 4 per cent relative to remaining in the EU.
Former chancellor Rachel Reeves said in March that the hit to Britain's GDP could be as high as 8 per cent, while a National Bureau of Economic Research paper estimates Brexit cut GDP by 6 to 8 per cent by the end of 2025. Goldman Sachs analysts said last week that closer ties with the EU would notably reduce the cost of Brexit, estimating a customs union could lift GDP by about 1 per cent and single market membership could add between 2 and 5 per cent.
The political backdrop is also shifting. New Persuasion polling for the IPPR think-tank finds that 52 per cent of voters want to rejoin the EU, compared with 29 per cent who want to stay out.
Our earlier coverage of Chancellor John Healey’s pre-Budget stance explained his commitment to sticking with a deficit-reduction strategy ahead of the October 28 Budget, while still trying to support growth and ease cost pressures. We also highlighted fresh ONS data showing GDP rose 0.1% in August and described the growing political tensions around the Budget, with warnings over potential tax rises and calls for deeper structural reforms to boost the UK’s long-term performance.
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