News story 4th Aug 2016

What is the expected effect of Brexit on UK citizens?

While the world is waiting with baited breath to see what the outcome of Brexit will be, we asked our panel of ESA Monash Forum economists about whether they thought there will be net benefits for UK citizens:

Assuming it is implemented, Brexit will deliver net economic benefits, on average, to UK citizens within its first five years.

As has been the trend in most coverage over the weeks since the referendum results were announced, the majority of our panel members (nearly 88%) disagreed with this statement.

Brexit

A very small minority of just 6% agreed with the statement.

Professor David Butler explains his agreement by stating that while there are many risks involved, he prefers to look for the positives a Brexit may offer.

“The pound will fall to make UK exports more competitive. Wealth inequality will diminish as the share market declines. Housing, particularly in London, will become more affordable as prices fall,” he writes.

In addition, he points out that the UK will save many billions of pounds each year from not paying into the EU budget, if they don’t seek to remain part of the single market.

This is not a popular stance among the panel members.

With regard to the falling pound, Professor Harry Bloch points out that any offsetting gains from a cheaper pound remains to be seen. In his opinion, “London’s role as an international financial centre will almost surely decline.”

The high level of uncertainty about how the exit will work and what it will mean in practice, is also likely to dampen investment

Professor Lisa Cameron

While most experts agree that the outcomes are unclear until negotiations have been finalised, there is a strong consensus that there are likely to be negative impacts on the UK economy as a result of Brexit.

Professor Lisa Cameron indicates that it will become more difficult for UK residents to do business in Europe, for example.

She points out that “the high level of uncertainty about how the exit will work and what it will mean in practice, is also likely to dampen investment. There is also the possibility of further disruption if it leads to Scotland leaving the UK.”

Professor John Quiggin is quite firmly in the ‘strongly disagree’ camp:

“A loss of income in the medium term is virtually inevitable, because of adjustment costs. The financial sector will contract, which is desirable in the long run but can cause plenty of short-term problems,” he writes.

As for the long term?

There seems to be a consensus among the panellists that that will all depend on how the process is managed. In short, it is quite clear that a lot is still unclear.

First, the UK Government will need to trigger Article 50. And if or when that will happen, seems to still be up for debate.