Government must make 'significant' concessions on Brexit, says NIESR

Theresa May’s government will have to make “significant” concessions to reach an agreement with the EU on Brexit and minimise damage to the economy, according to a leading economic think tank.

The National Institute of Economic and Social Research (NIESR) forecast British economic growth of 1.4% this year and 1.7% in 2019 under a ‘softer’ Brexit than May has proposed, warning the government would have to pay a bigger financial contribution or accept higher migration in return for approval of its plan.

A ‘harder’ and “more restrictive” Brexit proposals would amount to a loss of £500 per person a year in lost output compared with the a soft exit scenario, while a ‘no deal’ situation would see an £800 loss per head.

The think tank also commented that its estimates do not take into account the impact on productivity, which it said could double the size of losses.

With the Bank of England’s monetary policy committee meeting this week, the NIESR recommended cautious and gradual increases to interest rates.

“However, we think the Bank should emphasise the uncertainty of the future path for the policy rate. It is entirely possible that in three months’ time, because of the Brexit negotiations, because of the trade wars or some other reason, the August rate increase could look like a mistake,” said NIESR Amit Kara.