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Economists predict prosperity with unilateral free trade

By Ben Woods

Published 13/07/2016

Adrenalin shot: Patrick Minford
Adrenalin shot: Patrick Minford

The UK economy can prosper if Britain ditches the European single market and embraces unilateral free trade in the wake of Brexit, economists have said.

The Economists for Brexit group - which campaigned for Britain to leave the EU - said a unilateral free trade deal would deliver the demands of voters by returning sovereignty to the UK and allowing the nation to control its borders.

The group said economic growth will be largely unchanged by the Brexit vote and is predicting UK gross domestic product (GDP) to hit 2.3% this year, before reaching 2.7% for 2017 and 2018, and then growing to 2.8% in 2019 and 3.4% in 2020.

It said its forecasts were based on Britain leaving the single market, taking a tighter grip on migration and benefiting from long-term unilateral free trade.

Professor Patrick Minford, co-chairman of Economists for Brexit, said the collapse in sterling triggered by Brexit had acted like a "shot of adrenalin in the arm" of the UK economy

"(The fall in the value of the pound) adds to inflation and it adds to wage inflation. It offsets the uncertainty factor with a stimulus to net exports. It leaves the economy more or less where it was."

He said the benefits of rising exports and increased wages helps counter the negative impact of delayed investment, while the view that uncertainty caused by the Brexit vote was hampering UK economic growth was "coming out of nowhere".

Prof Minford said the plunge in the pound also meant there was no need for Bank of England governor Mark Carney to take "rapid action" and cut interest rates.

He said: "One of the side effects is that the current account improves more over the longer term than we would have had before. It also gets the inflation target up towards the target."

The group has predicted inflation to notch up to 1.3% this year, before rising to 2.9% next year, 3.3% in 2018, 2.8% in 2019 and 2.1% in 2020.

It puts the Bank of England on course to achieve its 2% inflation target by 2017.

Speaking about what trade deal Britain should seek following the Brexit vote, Prof Minford said an EU-lite model, which would see Britain remaining a member of the single market, would not deliver the same "substantial benefits and flexibility" of unilateral free trade.

The European Union has made it clear that Britain can only remain a member of the single market if it accepts immigration from EU member states through the free movement of people rule.

"What are the trade relationships that satisfy voter demands? Well clearly not EU-lite," he added. "The only actual option that seems to be available that would satisfy voter demands is this unilateral free trade option. It generates control of borders, it generates democratic control of laws and regulations."

The group also said the Treasury's economic report on Brexit was "grossly exaggerated ", while Prof Minford added that Mr Carney and Chancellor George Osborne's warnings over the damaging economic impact of "uncertainty" were " arbitrary ".

Economist Neil MacKinnon said a unilateral free trade deal would also help to curb the "quite substantial costs" to the UK economy caused by unskilled migrants on minimum wages.

He said the group's latest estimates showed that they cost £30,000 per year for a worker with a family, totalling £7.4 billion.

Dr Gerard Lyons, co-chairman of Economists for Brexit, added: "We need to ensure we send a clear message and vision of a global Britain - and this is possible with a points-based migration system, returning sovereignty to Westminster but being outside the single market."

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