Hostname: page-component-78c5997874-ndw9j Total loading time: 0 Render date: 2024-11-10T12:51:36.070Z Has data issue: false hasContentIssue false
  • English
  • Français

Will Brexit Raise the Cost of Living?

Published online by Cambridge University Press:  01 January 2020

Stephen Clarke ,
Ilona Serwicka  and
L. Alan Winters
Stephen Clarke
Affiliation:
Resolution Foundation
Ilona Serwicka
Affiliation:
The UK Trade Policy Observatory (UKTPO), University of Sussex
L. Alan Winters*
Affiliation:
The UK Trade Policy Observatory (UKTPO), University of Sussex
*
Corresponding author e-mail: L.A.Winters@sussex.ac.uk
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper considers two aspects of this question. First, Brexit has already induced a devaluation of sterling of around 14 per cent since June 2016, which has started to work through to consumer prices: between June 2016 and July 2017 consumer prices increased by around 2.5 per cent. Second, while it is not government policy, nor the desire of the UK public, that the outcome of negotiations is a ‘MFN Brexit’, this remains a distinct possibility. Thus we ask how the imposition of tariffs on imports from the EU will work through into consumer prices. Making very conservative assumptions, we conclude that ‘MFN Brexit’ will increase the average cost of living by around 1 per cent and increase it for 8 per cent of households by 2 per cent or more. We present results for different groups of households according to their employment and structural characteristics and show that the impact will generally be largest on unemployed, single parent and pensioner households.

Keywords

Brexitconsumptioninternational tradetariffspartial equilibrium modelF100F150F400
Type
Research Articles
Information
National Institute Economic Review , Volume 242 , November 2017 , pp. R37 - R50
Copyright
Copyright © 2017 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

The authors are grateful to Michael Gasiorek and Alasdair Smith of the University of Sussex, who developed a partial equilibrium multi-market model used for this analysis; to Agnès Cimper from the OECD for sharing the OECD, Bilateral Trade in Goods by Industry and End-Use ISIC Rev.4 Conversion Key; to Fellows of UK Trade Policy Observatory (UKTPO) for comments; and to Oliver Winters for his excellent research assistance. The authors thank the anonymous referees for their comments and suggestions, which helped to improve the paper. None is responsible for the paper's remaining infelicities.

References

Armington, P.S. (1969), ‘A theory of demand for products distinguished by place of production’, IMF Staff Papers, 16(1), pp. 159–78.Google Scholar
Brenton, P.A. and Winters, L.A. (1992), ‘Bilateral trade elasticities for exploring the effects of ‘1992”, in Winters, L.A. (ed.) (1992), Trade Flows and Trade Policy after ‘1992’, Cambridge: Cambridge University Press.Google Scholar
British Retail Consortium (2017), ‘The tariff roadmap’, available at: https://brc.org.uk/media/174063/brc-the-tariff-roadmap.pdf.Google Scholar
Chang, W. and Winters, L.A. (2002), ‘How regional blocs affect excluded countries: the price effects of MERCOSUR’, American Economic Review, 92(4), pp. 889–904.CrossRefGoogle Scholar
Fujita, M., Krugman, P. and Venables, A. (2000), The Spatial Economy – Cities, Regions and International Trade, Cambridge, Mass.: MIT Press.Google Scholar
Gasiorek, M., Serwicka, I. and Smith, A. (2017). ‘Modelling the effects of Brexit by sector and sub-sector’, mimeo.Google Scholar
Kee, H.L., Nicita, A. and Olarreaga, M. (2008), ‘Import demand elasticities and trade distortions’, Review of Economics and Statistics, 90(4), pp. 666–82.CrossRefGoogle Scholar
Levell, P., O'Connell, M. and Smith, K. (2017), ‘The exposure of households’ food spending to tariff changes and exchange rate movements', IFS Briefing Note BN213, available at: https://www.ifs.org.uk/uploads/publications/bns/BN213.pdf.CrossRefGoogle Scholar
Minford, P. and Miller, E. (2017), ‘What shall we do if the EU will not play ball? UK WTO trade strategy in a non-cooperative continent’, available at: https://static1.squarespace.com/static/58a0b77fe58c624794f29287/t/58e770b8e3df286cf6c93008/1491562708766/What-shall-we-do-if-the-EU-will-not-play-ball.pdf.Google Scholar
OECD, Bilateral Trade in Goods by Industry and End-use ISIC Rev.4 conversion key.Google Scholar
Stojanovic, A. and Rutter, J. (2017), ‘Frictionless trade? What Brexit means for cross-border trade in goods’, Institute for Government, available at: https://www.instituteforgovernment.org.uk/publications/frictionless-trade-brexit-august-2017.Google Scholar
UKTPO (2016), ‘Written evidence to the House of Lords EU Internal Market Sub-Committee’, available at: http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/eu-internal-market-subcommittee/brexit-future-trade-between-the-uk-and-the-eu-in-services/written/44698.pdf.Google Scholar
Winters, L.A. (2017), ‘Will eliminating UK tariffs boost UK GDP by 4 percent? Even ‘Economists for Free Trade’ don't believe it’, UKTPO blog, available at: https://blogs.sussex.ac.uk/uktpo/2017/04/19/will-eliminating-uk-tariffs-boost-uk-gdp-by-4-percent/.Google Scholar
Winters, L.A. and Chang, W. (2000), ‘Regional integration and import prices: an empirical investigation’, Journal of International Economics, 51(2), pp. 363–77.CrossRefGoogle Scholar
Supplementary material: PDF

Clarke, et al. Supplementary Material

Clarke, et al. Supplementary Material

Download Clarke, et al. Supplementary Material(PDF)
PDF 263.4 KB