Theresa May’s new government should reject concerns that leaving the European single market will damage Britain’s economic prospects and embrace unilateral free trade to boost exports, according to a group of economic analysts.
The Economists for Brexit group, which campaigned for Britain to leave the European Union, said a unilateral free trade deal would allow the UK to import cheaper goods and gain access to new markets, delivering greater prosperity.
The plea came as departing prime minister David Cameron said every effort should be made to stay inside the EU’s single market, to retain existing trading links with the continent.
Most economists have argued Brexit will damage the economy. Business leaders and remain campaigners have also urged May to seek a deal with Brussels that lowers tariff barriers while meeting the concerns of voters who want to restrict EU migrants from working in the UK.
Brexit economist Gerard Lyons, who advised former London mayor Boris Johnson, said: “We need to ensure we send a clear message and vision of a global Britain – and this is possible with a points-based migration system, returning sovereignty to Westminster but being outside the single market. An EU-lite policy would not be the best policy economically and is likely to disappoint the electorate.”
The group attacked dire predictions for the UK economy in the Treasury’s economic report on Brexit, which it said was “grossly exaggerated”. Prof Patrick Minford, co-chair of Economists for Brexit, accused Bank of England governor Mark Carney and chancellor George Osborne of issuing unjustified warnings over the damaging economic impact of “uncertainty”.
Economist Neil MacKinnon said a unilateral free trade deal would also help to curb the “quite substantial costs” to the UK economy caused by unskilled migrants on minimum wages. He said the group’s latest estimates showed that they cost £30,000 per year for a worker with a family, totalling £7.4bn.
Minford said economic growth would be largely unchanged by the Brexit vote and predicted UK gross domestic product (GDP) to hit 2.3% this year, before reaching 2.7% for 2017 and 2018, and then growing to 2.8% in 2019 and 3.4% in 2020.
He said the forecasts were based on Britain leaving the single market, taking a tighter grip on migration and benefiting from long-term unilateral free trade.
A well known monetarist economist and supporter of Margaret Thatcher, Minford said the collapse in sterling triggered by Brexit had acted like a “shot of adrenaline in the arm” of the UK economy.
He said the benefits of rising exports and increased wages helped to counter the negative impact of delayed business investment, while the view that uncertainty caused by the Brexit vote was hampering UK economic growth was “coming out of nowhere”.
The fall in the value of the pound, he said, “adds to inflation and it adds to wage inflation. It offsets the uncertainty factor with a stimulus to net exports. It leaves the economy more or less where it was.”
The International Monetary Fund and Paris-based thinktank the OECD have cut their forecasts for the UK’s growth this year to below 2%, while credit ratings agencies, which judge a nation’s creditworthiness, have downgraded the UK’s status in their global rankings.
Minford said the panic was misplaced and had largely bypassed consumers, who had maintained their spending. He said the plunge in the pound also meant there was no need for Bank of England governor Mark Carney to take “rapid action” and cut interest rates.
The group has predicted inflation to notch up to 1.3% this year, before rising to 2.9% next year, 3.3% in 2018, 2.8% in 2019 and 2.1% in 2020.
Minford said an “EU-lite” model, which would see Britain remaining a member of the single market, would not deliver the same “substantial benefits and flexibility” of unilateral free trade.
The EU has made it clear that Britain can only remain a member of the single market if it accepts immigration from member states through the free movement of people.
“What are the trade relationships that satisfy voter demands? Well clearly not EU-lite,” he added. “The only actual option that seems to be available that would satisfy voter demands is this unilateral free trade option. It generates control of borders, it generates democratic control of laws and regulations.”
This article was written by Phillip Inman Economics correspondent, for theguardian.com on Wednesday 13th July 2016 19.31 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010