A few thoughts on how Brexit is likely to affect the UK economy in 2021 - with the caveat that much remains uncertain 1/

Most important change on January 1st will be higher trade costs due to creation of UK-EU customs border plus restrictions on what services trade is allowed

Costs from regulatory divergence likely to be at least as important as border costs in the long run, but not immediately 2/
Expect disruption & delays at the border for the first few months

However, I do not anticipate shortages of essential goods, as imports can be expedited if needed, e.g. air freight, priority customs processing 3/
Delays will become shorter and more predictable as firms learn what paperwork is needed and customs capacity improves. Important for just-in-time supply chains where predictability is more important than speed 4/
Contrary to government claims, many costs will be permanent:
- Red tape, e.g. need for customs workers wastes resources & lowers productivity
wasting resources
- Tariffs (if no deal)
- Rules of origin (if deal)
- Lost market access for services

https://t.co/07wNehNn7z 5/
Border costs will raise import prices & make it harder for UK firms to export to EU. UK-EU trade will grow less quickly

Consumer price rises likely to be moderate (low single digits?) but will gradually erode living standards similar to post-referendum https://t.co/l7Zyegk7MZ 6/
Tariffs are low or zero in most sectors, but some industries would be hit hard by no deal, e.g. cars, clothing, meat & dairy. Loses concentrated on small groups, can trigger political backlash & have high salience

https://t.co/d2r6M1GlvB 7/
Aggregate effects of Brexit will be swamped by Covid in 2021, as vaccine roll-out and end of social distancing lead to strong recovery. But Brexit will still exert a drag on economic growth that will become more apparent as
time passes. 8/
For casual observers, border disruption & possible impact of tariffs on car industry & agriculture likely to be most visible immediate economic impacts 9/
Monetary policy: Brexit mostly irrelevant due to overwhelming importance of Covid in determining path of policy.

And, as the Bank of England has noted, monetary policy cannot offset the impact of a permanent negative supply shock 10/
Fiscal policy: subsidies can be targeted to hardest hit. I favour compensating losers from trade policy, but remember that compensation merely redistributes the
costs to tax payers rather than solving underlying problem of higher trade costs 11/

https://t.co/2ZULlcIotu
Further reading

Excellent @UKandEU report on implications of new deal. @anandMenon1 @jdportes @jillongovt: https://t.co/OV0XXk5ypk

Interesting @JohnSpringford @tomashirstecon piece on interactions between Brexit & Covid:
https://t.co/pgasjQHwzw

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The chorus of this song uses the shlokas taken from Sundarkand of Ramayana.

It is a series of Sanskrit shlokas recited by Jambavant to Hanuman to remind Him of his true potential.

1. धीवर प्रसार शौर्य भरा: The brave persevering one, your bravery is taking you forward.


2. उतसारा स्थिरा घम्भीरा: The one who is leaping higher and higher, who is firm and stable and seriously determined.

3. ुग्रामा असामा शौर्या भावा: He is strong, and without an equal in the ability/mentality to fight

4. रौद्रमा नवा भीतिर्मा: His anger will cause new fears in his foes.

5.विजिटरीपुरु धीरधारा, कलोथरा शिखरा कठोरा: This is a complex expression seen only in Indic language poetry. The poet is stating that Shivudu is experiencing the intensity of climbing a tough peak, and likening

it to the feeling in a hard battle, when you see your enemy defeated, and blood flowing like a rivulet. This is classical Veera rasa.

6.कुलकु थारथिलीथा गम्भीरा, जाया विराट वीरा: His rough body itself is like a sharp weapon (because he is determined to win). Hail this complete

hero of the world.

7.विलयगागनथाला भिकारा, गरज्जद्धरा गारा: The hero is destructive in the air/sky as well (because he can leap at an enemy from a great height). He can defeat the enemy (simply) with his fearsome roar of war.