Forget the short-term Brexit predictions, the crucial part of the OECD’s new report was the emphasis on domestic policyby Jonathan Portes / October 19, 2017 / Leave a comment
These days, whenever the experts from one of Michael Gove’s “organisations with acronyms” produce a new forecast or analysis of the UK economy, there is a predictable chorus of “I told you so” from both sides of the Brexit divide. On the Remain side, it’s vindication of their claim that the predicted economic downsides of Brexit are now materialising. Unsurprisingly, George Osborne’s Evening Standard claimed that this week’s OECD “bombshell report” “painted an apocalyptic vision of a ‘hard’ exit from the European Union in 2019.”
On the other hand, Brexiters point to the fact that some of the more alarmist pre-referendum forecasts—not least, Osborne’s own scaremongering claim that an emergency tax-raising budget would be required—have proved wrong. This is a reasonable point. Unfortunately, however, they tend to supplement this—as Gisela Stuart did this week and Gove, again, has done in the past—with facile smears that the views of the experts in question have been influenced by their receipt of “EU funding.” This is simply absurd in the case of the OECD, which gets a tiny percentage of its income from the EU.
But in fact, aside from a headline-grabbing reference to a second EU referendum, the views of the OECD on the short-term economic impacts of Brexit are neither particularly new nor particularly interesting. They note that growth has slowed—at the same time as it is accelerating in continental Europe and elsewhere—and forecast that it will slow further, driven by the post-Brexit fall in the exchange rate and the increasing impact of Brexit on consumer and business confidence, and hence investment. All this is very much in line with the prevailing consensus—which doesn’t mean it will necessarily be right or wrong, but certainly doesn’t justify the headlines.
“The OECD’s comparative advantage—and it is very good indeed at this—is on the ‘supply side’ of the economy, in policies like labour markets, housing and education”
And nor should this be surprising. The OECD’s main job is not forecasting or indeed making recommendations about monetary or fiscal policy. Indeed, when it did try its hand at this during the eurozone crisis, it was repeatedly, obviously and embarrassingly wrong, as I and otherspointed out at the time. In economists’ jargon, the OECD’s comparative advantage—and it is very good indeed at this—is on the “supply side” of the economy,…