OECD warns that Brexit could ‘stifle growth’ in UK
Britain will need to maintain close ties with the European Union and introduce new policies to boost productivity if living standards are to be maintained after Brexit, the OECD has said.
The recommendations come in the intergovernmental organisation’s latest economic survey of the UK, Addressing Brexit and weak productivity, which outlines the state of the economy since the referendum on leaving the European Union in June 2016.
The survey found that the UK economy has weakened since the referendum and identified a range of growing uncertainties and risks. These include a hit on households’ purchasing power from higher inflation, declining savings rates and a fall in net immigration.
It recommends that wide-ranging policy reforms are launched to boost the economic performance of lagging regions and new fiscal initiatives are introduced to increase productivity.
UK urged to maintain closest possible EU links
Launching the report in London on Tuesday with the UK’s chancellor of the exchequer, Philip Hammond, OECD secretary-general Ángel Gurría said: “The United Kingdom is facing challenging times, with Brexit creating serious economic uncertainties that could stifle growth for years to come.
“Maintaining the closest economic relationship with the European Union will be absolutely key for the trade of goods and services as well as the movement of labour. Macroeconomic and fiscal policy can and should continue being used to support the economy, both during and after the exit negotiations.
“Future prosperity will depend on new reforms to improve job quality, boost labour productivity and ensure that the benefits are shared by all.”
The price of uncertainty
Gurría said the UK’s annual GDP growth rate was the strongest among G7 countries at 2.3% in 2015, but fell to 1.8% in 2016 and just 1% in the first half of 2017, making it currently the weakest in the G7. The survey predicts continued slow growth in 2018.
“The UK’s preparation for Brexit in 2019 is creating big uncertainties, and will continue to weigh on the economy, at least until those uncertainties are resolved,” he said.
“It will be crucial that the UK and the EU maintain the closest economic relationship possible. This applies to the trade of goods and services, but also to the movement of labour, from which the UK has benefitted so much.”
Macroeconomic policies should continue to be used to support the economy during the “difficult” negotiation period and fiscal policy should remain pro-active, he said, while the UK should launch initiatives to boost productivity if growth weakens significantly in the run-up to Brexit.
UK’s productivity handicap
UK Chancellor of the Exchequer Philip Hammond (Image courtesy: Foreign and Commonwealth Office).
Addressing the regional productivity divide – between London and South-East England and the rest of the country – could be a key channel for fostering long term growth and spreading prosperity across the country, according to the report.
“We need to find ways of boosting local and regional transport infrastructure, research and development, housing and skills,” Gurría said. “Devolution will also continue to play a role in tailoring policies and creating larger economic hubs, such as the Northern Powerhouse or the Midlands Engine.
“Investment in education and skills is essential to help the poorest households and promote social mobility. Improving job quality is another challenge. Job security needs to be enhanced for workers on zero-hours contracts, and self-employment should be limited to truly independent entrepreneurs.”
The inevitable backlash
The OECD’s projected outcomes from risks to the UK economy during the Brexit negotiations provoked claims from leading Brexiteers that it is interfering in Britain’s democratic process.
In the report, the agency predicted that reversing the Brexit process would boost the economy, while a no-deal scenario would cause investment to seize up, inflation to rise, the pound to hit new lows, and the UK’s credit rating to be cut.
“In case Brexit gets reversed by political decision (change of majority, new referendum etc.), the positive impact on growth would be significant,” the report states.
As reported by the Guardian, Change Britain chair and former Labour MP Gisela Stuart said: “It is laughable that the EU-funded OECD, at a time that is the most helpful possible for Brussels, has the gall to intervene in our negotiations and call for Brexit to be reversed.
“These EU elites refuse to accept that 17.4 million people voted to take back control, and meant it. The British public didn’t believe the OECD’s scaremongering before, and nor should they start now.”
“We are leaving the EU and there will not be a second referendum,” the Treasury said in statement.
About Liz Heron
Liz Heron is a journalist based in London. She worked on daily newspapers for more than 16 years as an education correspondent, section editor and general news reporter. She was Education Editor of the South China Morning Post in Hong Kong and has contributed to a wide range of British media including The Independent, The Guardian and the BBC.
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