OBR forecasts that Brexit would damage UK-EU trade are unfounded, says IEA

Forecasts by the Government’s financial watchdog that Brexit would cause significant damage to UK-EU trade have failed to materialise and created “a false narrative” in the minds of the public, a think tank has said.

Predictions made by the Office for Budget Responsibility (OBR) before Britain’s exit from the single bloc suggested that the UK economy would shrink by about 4pc in the long run as a result of Brexit.

But the Institute for Economic Affairs (IEA) said the UK’s trade patterns with the EU failed to show any impact from Brexit, either since the referendum or the end of the transition period.

UK exports to EU countries climbed by 13.5pc between 2019 and 2022, before and after Brexit, with exports to non-EU countries growing by 14.3pc, the IEA said.

Meanwhile, UK services exports rose by 14.8pc to EU nations and 22.1pc to non-EU countries over the same period.

Speaking at the Government’s International Trade Week on Monday, Kemi Badenoch, the Business Secretary, is expected to say of the report: “This is why I just don’t agree with the narrative that Brexit has ‘severely damaged’ our economy.

“Every major country, especially in Europe, has faced significant economic challenges over the last few years.

“We should stop taking ourselves down, and instead talk ourselves up.

“Contrary to some media reports and many pre-Brexit establishment voices, the data says Brexit has not had a major impact on UK–EU trade.

“This is also why, when talking about commerce and industry, we have to deploy critical thinking and apply first principles of free and open trade.”

Catherine McBride, an economist at the IEA, said that while the Covid pandemic, rising energy prices and so-called rules of origin tariffs had influenced some trading patterns, there was no evidence of overall negative effects attributable to Brexit.

She added: “A false narrative that Brexit has harmed UK trade is now firmly entrenched in the British public psyche, but this just isn’t true.

“The vast majority of UK and EU trade is conducted by multinational companies who manage to sell goods all over the world without baulking at the paperwork”.

The OBR has come under increased scrutiny in recent weeks after admitting that its economic forecasts contained “genuine errors” as it underestimated the inflation shock from Covid and the war in Ukraine.

The financial watchdog said last month that its forecasts in March 2021 and March 2022 missed a large part of the spike in prices and the subsequent state support schemes, which led to ramifications for its predictions of tax revenues, spending and interest rates.

The OBR was set up in 2010 after being championed by George Osborne, the then chancellor, in his first major public policy speech.

Its next set of forecasts are due for publication alongside the Chancellor’s Autumn Statement on 22 November.

David Miles, one of the OBR’s three-strong executive team, told The Telegraph in March that forecasts it published at the time were “almost guaranteed to be wrong” but insisted it did not dictate the Government’s tax or spending priorities.

Post-Brexit trade policy has been an ongoing bone of contention, even as the Government has struck bilateral deals with countries including Australia and New Zealand and secured admittance to the Trans-Pacific Partnership trade bloc.

Critics have said that after the UK left the EU in 2019, not enough has been done to ditch EU rules and regulations holding back British businesses.

The most high-profile effort to break away from Brussels’ red tape, the UKCA kitemark, was dropped in August as Rishi Sunak agreed to let British companies continue using the EU-approved ‘CE’ mark for goods sold in the UK, indicating conformance with Brussels’ standards rather than London’s.