Budget 2020, including the macroeconomic outlook which underpins it, was based on the prudent assumption that the UK would leave the EU on 31 October without an agreement. The macroeconomic outlook is set out in the Economic and Fiscal Outlook published with Budget 2020. This included, at Box 4, an assessment of the macroeconomic outlook that would apply in the event of an agreed exit by the UK at end October.
The Withdrawal Agreement endorsed by the European Council, will now require ratification by the European Parliament and the UK Parliament. Pending ratification of the deal, it is not possible to say if the outlook will be different to that set out in Budget 2020.
If the Withdrawal Agreement is ratified, the UK will enter a transition period until at least the end of 2020. In this situation the outlook would be broadly similar to that set out in Table 4 (Box 4) in the Economic and Fiscal Outlook 2020. This shows that, in the event of an agreed exit, GDP growth is forecast to be 3.1 per cent in 2020, with employment growth projected at 1.7 per cent next year and the unemployment rate expected to be 5.1 per cent.
The revised Political Declaration envisages an ambitious trading relationship for goods on the basis of a Free Trade Agreement, but until there is greater clarity on the post-transition relationship there is likely to be continued uncertainty, particularly with respect to private sector investment. My Department has been in contact with the ESRI on the economic impact of the revised Withdrawal Agreement and Political Declaration on the future relationship. I am satisfied that the existing analysis in the joint research by the Department of Finance and ESRI, published in March this year, broadly captures the range of possible future relationships. The analysis included a free trade agreement (of which there could be many forms), and a trading relationship under World Trade Organisation (WTO) frameworks. The impacts of these were modelled and estimated in the joint research which was published in March this year.
Under these scenarios, over the medium-term (i.e. 5 years) the level of GDP would be of the order of between 1.9 and 3.3 per cent lower, respectively, compared to a situation where the UK remains in the EU. The negative impacts will be most severely felt in those sectors with strong export ties to the UK market – such as the agri-food, manufacturing and tourism sectors and also SMEs generally – along with their suppliers. The impact will be particularly noticeable outside the main cities.
My Department will continue to monitor developments with respect to the ratification of the Withdrawal Agreement, and the future relationship with the UK, and will update the macroeconomic and fiscal projections to take account of any developments in the Spring of next year at the latest.