The leaked Brexit report won't have any political effect

So an internal government report has been leaked that says whichever Brexit option the UK goes for there will be a detrimental effect on GDP. Depending on which form of Brexit we end up going for the range is from 2% of foregone GDP in 15 years up to as much as 8% of GDP in 15 years. Scary stuff.

Lots of people in the Remain camp seem to think that this is going to have an effect on the debate about Brexit now that the report is in the public domain. But I simply can't see how this will be the case.

For a minute let's just accept that what the report says is accurate. I know plenty of people will disbelieve it but I want to look at the effect on people who do believe it. Because if it does pan out the way the report says the effects of Brexit will be diffuse and spread out over many years.

Let's take the mid point. Let's say that in 15 years time GDP is 5% lower than it would otherwise have been. How are people going to know that it has happened and to quantify the effects on their lives?

Well what I am going to do here is a bit rough and ready but in 2016 (the last year we have relatively accurate figures for) UK GDP was 1,939 billion pounds. And in that year GDP growth was 1.8% on the previous year. So let's just hypothesise that for the next 15 years after 2016 growth ends up being 1.8% every year. That would mean by 2031 GDP would be:


1939 * 1.018^15 = 2534


That's 2,534 billion pounds in 15 years time. Or approximately 30.7% more than it is now.

Now let's factor in the 5% extra GDP that we won't get because of Brexit. So let's just say that growth instead across that period will actually only be 25.7%. Which means GDP will instead only be 2,437 billion pounds.

That is a big difference. It's nearly £100 billion that we will have foregone by 2031. That's roughly £1,500 for every person in the country.

However that is not how it will be felt. Let's reverse engineer this calculation to work out what the GDP growth figures would be on average in order to reach this lower number in 2031.


1939 * X^15 = 2437

Divide both sides by 1939

X^15 = 2437/1939 = 1.25683342

X = 15th Root of 1.256833419 = 1.01535641


In other words, instead of growth on average being 1.8% it will be 1.53%.

This is how it will be seen. In fact it is the only way it can be seen. In GDP figures.

The biggest hurdle is that there is no way of knowing for sure that growth would have been 1.8% without Brexit. That has to be taken on trust. But like I said even if you do accept it, what are people going to make of the fact that growth has been 0.3% lower than it would have been? You can't touch or taste it. It's just a hypothetical number in a spreadsheet. It will have almost no political cut-through for this reason.

If you doubt me, try this little experiment.

Find 5 people you know (who are not involved in politics or economics) and ask them what GDP growth was last year. I'd be very surprised if in the majority of cases the average margin of error from the answers was less than 0.3%.

QED

What's good for the goose....

Initial GDP figures for Q3 2012 suggest that we are now out of recession and that the economy grew by 1%.

Good news! Or so you would think.

There are plenty lining up though to claim that the "exceptional circumstances" of the Olympics are largely to credit for this and that hence the picture is still quite bleak.

They may well have a point, but I would take them more seriously if these criticisms were not largely coming from the same quarters that reacted with derision when George Osborne tried to claim last year that one off factors such as the extra bank holiday for the Royal Wedding had suppressed growth.

So it would appear that exceptional circumstances should be taken into account, but only when they contribute positively. If they have an adverse effect we're not allowed to hear them mentioned under threat of vilification for any who dare.

Can we have a bit of consistency please? Either they count or they don't.

Personally I would rather just see the figures reported and leave any exceptional stuff to one side no matter which direction. There will often be one off things going on and it seems a bit silly to constantly have these sort of arguments.

For now I'm just pleased we have some good positive growth figures. Hopefully this will help boost confidence and contribute to a virtuous circle that becomes self fulfilling.

GDP 1.1% up - good sign but let's not read too much into it

So the figures are now out for growth in Q2 2010 and it is looking like it is almost double what was predicted by economists. They thought it would be 0.6% and it is actually 1.1%

Predictably both Labour and the government are trying to claim that the better than expected figures vindicate their policies. Alistair Darling claims that they prove the previous government's "measured and balanced" approach is working. Meanwhile George Osborne claims that they show the current government's plan to cut the public sector is the right approach (only 0.1% of the growth came from the public sector, the remaining 1% is from the private sector).

I think it is too early to say what these figures show with any certainty. Also, they cover April, May and June which is almost perfectly bisected by the two administrations. April and the first half of May had Labour at the helm whilst for the second half of May and June the coalition was in place. But the idea that the decisions taken by the coalition in recent weeks would already have percolated through to the growth figures is I think a little far-fetched. If anything I would say Labour have the stronger claim as it is their policies in the last year or two that will still be having their effect. But even then, there was a strong expectation that Labour would not be in power after May and so market sentiment for what it thought would happen may also need to be priced in.

So I don't think either side should get carried away and make overblown claims at this stage. not least because these are only preliminary figures which could end up revised down in a few weeks time.

I would suggest that the growth figures in the next few quarters will be more instructive as to whether we are on the right track now rather than what we have seen today.