How bad is Brexit going to be for the British economy? In a highly perceptive and iconoclastic piece, Graham Gudgin – an economist and econometric model-builder with impeccable credentials – questions the ‘majority view …that the loss of GDP could be severe’. Gudgin shows that the so-called ‘gravity models’ that were used by the UK Treasury, for example, incorporated EU-wide, rather than UK-specific, trade gains and losses to work out the impact on GDP. Yet, when UK-specific parameters are used by Gudgin and his co-authors to replicate the results of the Treasury model, the negative consequences on GDP becomes rather moderate amounting to no more than a ‘..worst-case loss of under 2% in 2025’.
Gudgin and his co-authors found it difficult get a proper hearing. The UK Treasury ‘refused multiple requests to discuss their work’. The ‘major economics media’ also refused to grant publicity to these contrarian findings. Gudgin makes the plausible speculation that the UK Treasury is not really independent but intimidated and influenced by its political masters. The Chancellor of the Exchequer at the time (George Osborne) was a strong advocate of remaining within the EU and the Treasury was mindful of that fact. Furthermore, a professional consensus has developed among the economics fraternity that Brexit is bad for Britain. The UK Treasury seems unable – at least until now – to question that consensus.