Business Analysis & Features

On 31 December the post-Brexit transition period ends and, with or without a free trade deal with the European Union, the UK will start life outside the EU’s single market and customs union.That will, pretty much all economists tell us, have a substantial economic impact on our lives.  But what exactly will those impacts be – and how will ordinary people experience them?
Below we describe how the two varieties of Brexit are likely to impact house prices and mortgages – two areas which people commonly equate with their wealth and personal finances.Leaving the EU with a free trade deal would, according to the Treasury’s independent Office for Budget Responsibility be a long-term drag on the economy, reducing economic output by around 4 per cent relative to otherwise.
But it would mean any short-term disruption, above and beyond the huge coronavirus impact, would be avoided.
During the lockdown earlier this year the housing market largely ground to a halt, with the number of transactions collapsing in April.But the traded price of the average house hasn’t collapsed this year. And the market has been bolstered by a stamp duty holiday from the chancellor announced in the summer, which lasts until March 2021.All this suggests that leaving the EU with a successful trade deal probably won’t have a short-term negative impact on house prices.
In the longer term, the price of housing will be determined by the balance of supply of new housing and the demand for it and also interest rates. Moving from EU membership to a free-trade deal with the bloc is unlikely to directly influence these major structural determinants.As for mortgages, most borrowers’ repayments are indirectly determined by the main national interest rate set by the Bank of England. Leaving the EU with a trade deal would be a more benign economic scenario from the point of view of the Bank’s rate setting committee.It might bring forward the date at which the Bank raises rates, relative to a no-deal scenario on 31 December. And that could push up mortgage repayments for many households.Yet the Bank is mindful of the overall economy, which is still in the grip of the coronavirus emergency, and financial markets are not expecting significant rate rises from the Bank any time soon, whether there is a Brexit deal or not.Some surveyors are nervous about the impact of a no-deal Brexit on the UK housing market.  Several cite it, alongside the impact of Covid, in the latest survey by the Royal Institution of Chartered Surveyors (RICS) as a potential dampener on the market.  If unemployment rises sharply next year because of the coronavirus crisis and a no-deal Brexit that’s unlikely to be positive for house prices.Yet it’s hard to say with any confidence that house prices would fall in the event of a no-deal Brexit, especially as they have held up extraordinarily well in the face of the coronavirus crisis, which has seen the biggest shock to the UK economy in some three hundred years.
As for mortgages, financial markets are currently pricing in the Bank of England cutting interest rates below zero in the coming months to help support the economy. Many analysts think a no-deal Brexit could be the factor that pushes the Bank to take such a plunge into negative territory for the first time.While negative interest rates probably wouldn’t result in a fall in average mortgage repayments from their current ultra-low levels, it would ensure they didn’t rise.  This could help cushion the financial blow of a no-deal Brexit for some households. But for those who work in sectors such as manufacturing, which are especially exposed to the shock of a no-deal Brexit, the bigger threat to their livelihoods would probably be redundancy than rising mortgage repayments. More

On 31 December the post-Brexit transition period ends and, with or without a free trade deal with the European Union, the UK will start life outside the EU’s single market and customs union.That will, pretty much all economists tell us, have a substantial economic impact on our lives.  But what exactly will those impacts be – and how will ordinary people experience them?
Below we describe how the two varieties of Brexit are likely to impact peoples’ wages, benefits and taxes.There are various ways of modelling the economic impact of the UK leaving the EU.  One is to analyse the likely overall economic impact on the UK economy of higher trade barriers with the EU, the bloc with which we currently do around half of our trade.Virtually every macroeconomic trade model shows that leaving the EU with a free trade deal would hold back the UK economy’s growth relative to staying in the bloc. The Office for Budget Responsibility, the Treasury’s own independent forecaster, this week estimated it would impede UK GDP growth over the next 15 or so years by around 4 per cent relative to where it otherwise would have been.  This picture would be roughly the same if we successfully concluded ambitious trade deals with the likes of countries such as the US, Australia and New Zealand.  The Government’s own economic modelling team estimates all these deals combined would add a maximum of 0.2 per cent of GDP in the long run.This 4 per cent of GDP loss accounts for £80bn in today’s money, or around £3,000 for each of the UK’s 28 million households. This could be experienced in the form of lower wages, lower benefits and higher taxes than otherwise would have accrued to households.  £3,000A rough indication of the size of the economic pain that would be borne by the average household from leaving the EU with a Brexit dealIt’s impossible to say exactly how much individual households would suffer financially, because this will depend on which sectors of the economy members of a household work in and the decisions of future politicians about redistribution through benefits and taxes. But this £3,000 figure gives a rough indication of the size of the economic pain that would be borne by the average householdAnother way to model Brexit is to examine different sectors such as agriculture, finance, fishing, manufacturing and so on. These exercises show that some sectors, specifically those that do a great deal more in trade with the Continent than others, would face more damage.  Modelling suggests clothing, chemicals, pharmaceuticals, motor manufacturing, agriculture and financial services would be hit the most.  This implies that workers in those industries would likely face a more severe economic hit. But firms in sectors that don’t trade much with Europe, such as construction, might well be relatively unaffected. However, it’s important to stress that such sectors could also be negatively impacted by future restrictions on EU migration, which would have implications for the wages of those who currently work in them.Leaving the EU without a trade deal on 31 December would, according to the UK’s independent Office for Budget Responsibility (OBR), hold back UK GDP growth by around 2 per cent in 2021, or £40bn.  That translates into a loss of £1,500 per UK household. And over 15 years the OBR estimates, based on the modelling done by a host of independent researchers, that the damage would hit 6 per cent of GDP, or around £120bn, or around £4,000 per household.
Again, it’s impossible to say precisely which households would suffer because this would depend on which sectors people work in and the decisions of future politicians about benefits and taxes.  Yet this is a rough indication of the size of the economic pain that would be borne – in some way – by the average UK household.
The impact of a no-deal Brexit on particular sectors would be even more unequally felt than leaving the EU with a free trade deal.  Many exporting firms would face EU tariffs, which would make those exports less competitive and likely reduce demand for them, blowing a hole in the incomes of people working in these sectors.The impact on the automotive sector would be especially severe because all cars exported to the EU ( the destination of half of UK-manufactured cars), would be hit by a 10 per cent tariff.The OBR thinks unemployment would rise by around 300,000 next year, relative to otherwise, if we left the EU without a free trade deal. It’s likely that these lost jobs would be concentrated in those sectors which are heavily reliant on EU trade. Researchers at the Institute for Fiscal Studies calculate that lower-skilled workers more likely to be hit economically by a no-deal Brexit.“These tend to be older men with skills specific to their occupation who, history suggests, may struggle to find equally well-paid work if their current employment were to disappear,” they note. More

On 31 December the post-Brexit transition period ends and, with or without a free trade deal with the European Union, the UK will start life outside the EU’s single market and customs union.That will, pretty much all economists tell us, have a substantial economic impact on our lives.  But what exactly will those impacts be – and how will ordinary people experience them?
Below we describe how the two varieties of Brexit are likely to impact peoples’ wages, benefits and taxes.There are various ways of modelling the economic impact of the UK leaving the EU.  One is to analyse the likely overall economic impact on the UK economy of higher trade barriers with the EU, the bloc with which we currently do around half of our trade.Virtually every macroeconomic trade model shows that leaving the EU with a free trade deal would hold back the UK economy’s growth relative to staying in the bloc. The Office for Budget Responsibility, the Treasury’s own independent forecaster, this week estimated it would impede UK GDP growth over the next 15 or so years by around 4 per cent relative to where it otherwise would have been.  This picture would be roughly the same if we successfully concluded ambitious trade deals with the likes of countries such as the US, Australia and New Zealand.  The Government’s own economic modelling team estimates all these deals combined would add a maximum of 0.2 per cent of GDP in the long run.This 4 per cent of GDP loss accounts for £80bn in today’s money, or around £3,000 for each of the UK’s 28 million households. This could be experienced in the form of lower wages, lower benefits and higher taxes than otherwise would have accrued to households.  £3,000A rough indication of the size of the economic pain that would be borne by the average household from leaving the EU with a Brexit dealIt’s impossible to say exactly how much individual households would suffer financially, because this will depend on which sectors of the economy members of a household work in and the decisions of future politicians about redistribution through benefits and taxes. But this £3,000 figure gives a rough indication of the size of the economic pain that would be borne by the average householdAnother way to model Brexit is to examine different sectors such as agriculture, finance, fishing, manufacturing and so on. These exercises show that some sectors, specifically those that do a great deal more in trade with the Continent than others, would face more damage.  Modelling suggests clothing, chemicals, pharmaceuticals, motor manufacturing, agriculture and financial services would be hit the most.  This implies that workers in those industries would likely face a more severe economic hit. But firms in sectors that don’t trade much with Europe, such as construction, might well be relatively unaffected. However, it’s important to stress that such sectors could also be negatively impacted by future restrictions on EU migration, which would have implications for the wages of those who currently work in them.Leaving the EU without a trade deal on 31 December would, according to the UK’s independent Office for Budget Responsibility (OBR), hold back UK GDP growth by around 2 per cent in 2021, or £40bn.  That translates into a loss of £1,500 per UK household. And over 15 years the OBR estimates, based on the modelling done by a host of independent researchers, that the damage would hit 6 per cent of GDP, or around £120bn, or around £4,000 per household.
Again, it’s impossible to say precisely which households would suffer because this would depend on which sectors people work in and the decisions of future politicians about benefits and taxes.  Yet this is a rough indication of the size of the economic pain that would be borne – in some way – by the average UK household.
The impact of a no-deal Brexit on particular sectors would be even more unequally felt than leaving the EU with a free trade deal.  Many exporting firms would face EU tariffs, which would make those exports less competitive and likely reduce demand for them, blowing a hole in the incomes of people working in these sectors.The impact on the automotive sector would be especially severe because all cars exported to the EU ( the destination of half of UK-manufactured cars), would be hit by a 10 per cent tariff.The OBR thinks unemployment would rise by around 300,000 next year, relative to otherwise, if we left the EU without a free trade deal. It’s likely that these lost jobs would be concentrated in those sectors which are heavily reliant on EU trade. Researchers at the Institute for Fiscal Studies calculate that lower-skilled workers more likely to be hit economically by a no-deal Brexit.“These tend to be older men with skills specific to their occupation who, history suggests, may struggle to find equally well-paid work if their current employment were to disappear,” they note. More

Whatever you do, don’t call it an extension. Having insisted for months that the furlough scheme would end in November come what may Rishi Sunak was never going to stand up in the House of Commons to announce a simple roll-over of the emergency jobs support established earlier this year.That’s not the way politics works.
But is the distinction between the chancellor’s new “Jobs Support Scheme” announced on Thursday and the “Job Retention Scheme” really that large?Watch moreIn some ways the answer is no. Changes to the furlough scheme since August had already required employers to make a rising contribution to the wages of furloughed workers.Any objective observer asked to place this new scheme on a policy continuum between what the chancellor unveiled in July – a £1,000 bonus for each worker brought back – and furlough would put it much closer to furlough.To that extent Labour’s shadow chancellor, Anneliese Dodds, is justified in saying that the chancellor has U-turned.Yet there are material differences between this and furlough.The level of support from the state to the payrolls of eligible companies is significantly lower. Under the new programme, the government’s maximum contribution to a worker’s wages falls to 22 per cent, down from 60 per cent under furlough. And only employees who are working at least a third of their normal hours will be eligible.The important question is of course whether it succeeds in stemming a steep rise in unemployment over the winter.
Even before the latest restrictions official forecasts were projecting a possibility of joblessness shooting up to 4 million by early next year as the furlough scheme ended. Will the new system help avert such a disaster for the jobs market? The answer is that it’s impossible to know for sure.The new wage subsidy might persuade managers, facing downsizing decisions, to wait until the economic outlook is clearer.  The extension and rolling over of the business loan support also announced by the chancellor will probably help on that front.But other employers might look at the size of the financial support on offer from November – and the considerably darkened economic outlook – and decide that holding onto workers who they can’t employ full time would simply be to delay the inevitable.
The sad fact is that many employers will have already made their decisions, having started their redundancy consultation processes in recent weeks.
It’s pretty hard to see how this scheme would make a material difference to employers’ decisions in the event of another national lockdown, which ministers have warned might be needed if the spread of the virus is not arrested by the new measures implemented this week. If the Treasury has a plan to protect jobs in those circumstances it’s keeping it very well hidden.
But that might be overly pessimistic. There’s some evidence that new coronavirus infection cases in Spain and France, which have been a few weeks ahead of the UK on the curve of this second wave of the epidemic, are slowing.  Good news on a vaccine might arrive and brighten the economic outlook.  And the fact that the new short-time working scheme has the broad support of the trade unions and the business lobby groups – and seems to have been designed with their input, as was the original furlough scheme – is a hopeful sign. Such groups are almost certainly closer to the thinking of private sector decision makers than ministers and Whitehall civil servants.Yet the bottom line is that the outlook on the employment is as clouded and uncertain as that future of the pandemic.
The proof of this wage subsidy pudding will be in the eating this winter. More