Brexit: Truss aims to secure deal on NI Protocol
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Former Chief Economist at the Institute of Economic Affairs Julian Jessop claimed that many economists who are making pessimistic predictions about the future of Brexit Britain are focusing too much on the negatives. At the end of 2020, the UK’s growth was expected to be 4.2 percent, lower than that of France and Italy.
Furthermore, a survey in the Financial Times in December 2020 found that most economists didn’t expect the UK to return to its pre-Covid level until the third quarter of 2022.
However, these predictions proved to be incorrect after the reality emerged.
The UK actually surpassed it’s pre-Covid level of GDP in November last year, reaching 0.9 percent – significantly higher than the 0.4 percent prediction from many economists.
The latest Treasury survey estimates that GDP will rise by around 5 percent in 2022 – while Mr Jessop placed it at closer to 7 percent.
Mr Jessop argued that economists are ignoring the signs of the UK bouncing back after a slow economic period immediately after Brexit.
He said: “A lot of forecasters just look at one or two things, and they just focus on things in headlines like the cost of living crisis.
“At the beginning of the year, some economists were very pessimistic because of Omicron, even though we now know that threat is fading.”
Speaking to the BBC, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “GDP almost certainly dropped in December, as households hunkered down in response to the Omicron variant.”
However, he added: “Omicron looks set to fade almost as quickly as it arrived, thanks partly to the rapid rollout of booster jabs.
As a result, we expect the government to allow Plan B rules to automatically expire on January 26 and for GDP to bounce back in February.”
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Mr Jessop continued: “A lot of the surveys that I’ve seen for this year are people saying pretty much the same things they said last year, that Brexit will keep the economy uncertain and so on.
“But they were wrong last year, and they’re going to be wrong this year.”
One of the key factors being ignored by other economists, argued Mr Jessop, is the prospect of business investment as uncertainty around Brexit begins to fade.
The government has offered a generous incentive for companies known as the super-deduction, which allows businesses to cut their tax bills by 25p for every £1 they invest in plant and machinery.
According to the Bank of England, companies’ investment intentions rose to a 14-year high at the end of 2021.
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Speaking to the Financial Times, Confederation of British Industry director-general Tony Danker was not convinced by the huge boost, stating the level of investment “is a welcome catalyst, but a one-hit-wonder isn’t enough to make up for four decades of underperforming business investment”.
However, Mr Jessop stated: “While I’d agree that initially, Brexit was bad for the economy, people underestimate the importance of uncertainties.
“That uncertainty is fading – people now know what they have to deal with.
“Most economists have not given enough weight to how strong business investment will be this year. It’s so important partly because it’s a sizable part of the economy, but also because businesses then invest more themselves.
“That’s good for productivity, and good for real wages as well.”
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