Arj Singh
NET immigration will not be cut to the “tens of thousands” Government target in the next four years despite Theresa May’s Brexit commitment to take Britain out of the single market, the Office for Budget Responsibility (OBR) has said.
The fiscal watchdog kept its Brexit assumptions, which help drive its economic forecasts, the same as in November’s Autumn Statement, despite the Prime Minister announcing in her keynote January speech that the UK would quit the single market.
Mrs May made the commitment so Britain can end free movement, a condition of single-market membership, and regain full and tighter control of EU immigration after Brexit.
The OBR said it asked the Government for more information to help it produce its economic forecasts and was directed to that speech and last month’s Brexit white paper.
But, despite greater knowledge of the Government’s objectives, “there is understandably little detail about how it intends to achieve them”, the OBR said.
The watchdog said the “considerable uncertainty” around the economic impact of Brexit meant it could not change its assumptions from the Autumn Statement, when Mrs May had revealed considerably less about the Government’s plans.
It had therefore stuck to its assumption that net inward migration would fall to 185,000 by 2021, based on population growth assumptions on the Office for National Statistics’ “principal” population variant.
This would be a significant drop from 273,000 in the year to September 2016, which itself was a two-year low, but short of the Government’s target of getting net migration down to the tens of thousands.
The OBR also assumed the pace of import and export growth would be slowed for the next decade and that the UK would leave the EU in April 2019.
The watchdog said: “While the Government has now set out some of its objectives more formally, there is understandably little detail about how it intends to achieve them.
“In many areas the policy outcome will depend not just on decisions made by the UK Government, but also on those of the parties that will be negotiating with it on behalf of the EU and other countries with which it might wish to establish new trading arrangements.
“Given the uncertainty regarding how the Government will respond to the choices and trade-offs with which it will be confronted in the negotiations, there is no meaningful basis for predicting the precise end point of the negotiations as a basis for our forecast.
“There is also considerable uncertainty about the economic and fiscal implications of different outcomes, even if they were predictable.
“So we have retained the same assumptions that underpinned our November forecast, which are consistent with a range of possible outcomes.”
The OBR made clear it had not “conditioned its forecast on a specific outcome expected from the negotiations” as it predicted lower net immigration, lower trade and lower foreign direct investment (FDI) after Brexit.
“Rather, we have made the judgment – in line with a range of external studies – that most outcomes are likely to depress investment, at least temporarily, and lead to lower net inward migration than would otherwise have been the case,” it said.
“Productivity growth could also be affected by lower trade and FDI than otherwise. Together, these lower the prospective path for potential output but the precise impact will remain highly uncertain, even in hindsight.”
ends The watchdog also forecast that Brexit would deliver a blow to growth in international trade, although the hit to imports and exports would be far less than that experienced in the 1930s.
“At least over the forecast period, the process of leaving the EU and negotiating new trading arrangements is assumed to be associated with a lower trade intensity of UK economic activity,” the OBR said.
“Trade intensity has been on an upward path since the Second World War, but has risen less rapidly since the financial crisis.
“In our March 2016 forecast, we expected the upward trend to reassert itself. We now expect it to reverse for a period, although by far less than was seen in the inter-war years.”
ends The OBR also forecast that about 525,000 foreign workers would account for the vast majority of the 700,000 predicted rise in employment to 2021/22, as “inward migrants are disproportionately of working age”.
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