Chancellor says Brexit deal caused long-term damage to economy

"In remarks published this weekend, the chancellor told the world's leading finance ministers and central bankers: "The UK's productivity challenge has been compounded by the way in which the UK left the European Union." She quoted the OBR's calculation of a 4% long-term hit relative to remaining in the EU, and said the UK "acknowledges this" in seeking stronger trade ties."

"Labour had been reluctant to stress arguments about economic downsides from Brexit. However, since its conference last month, ministers have been increasingly strident in making such arguments. The open use of this argument in the most high-level global economic policy council, including the G7, China, India, the EU and European Central Banks, would have been unsurprising around the table. It confirms a notable change of emphasis, domestically."

"It is expected to become a key part of the government's argument in the run-up to the Budget on 26 November, where a large part of the need for new measures - expected to be tax rises - will be down to a downgrade to long-term UK productivity. The Office for Budget Responsibility will be expected to spell out in detail why any downgrade has occurred, when it publishes its forecast at next month's Budget."

The 2020 Brexit deal has compounded the UK's productivity challenge, with the Office for Budget Responsibility estimating a roughly 4% long-term reduction compared with remaining in the EU. That downgrade is expected to influence the November Budget, increasing justification for new measures and possible tax rises. The OBR will be asked to detail causes of any productivity downgrade in its forecast. External economists point to reduced investment after the referendum and underperformance in goods trade, while services trade has remained robust and new freedoms for global trade deals are cited. Brexit reset negotiations, including scrapping post‑Brexit checks on food, make the issue politically sensitive.

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