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Theresa May's Brexit deal could leave UK economy 5.5% smaller, says study

The UK will be weaker under the PM's deal than if it stayed in the EU - but would be even worse off without a deal, a study says.

Officials agree a 26-page draft text of the political declaration on the UK's future relationship with the bloc.
Image: Theresa May and European Commission President Jean-Claude Juncker have agreed the deal
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Theresa May's Brexit deal will leave the UK economy as much as 5.5% smaller after a decade than if the UK remained in the European Union, according to new research.

The study by experts at the London School of Economics, King's College London and the Institute for Fiscal Studies found that a no-deal scenario would be even worse, leaving the economy 8.7% worse off than if the UK stayed in the EU.

It also said the hit to the public finances - up to 1.8% of GDP under Mrs May's deal or 3.1% with no deal - would "far outweigh" any gains from reduced contributions to EU budgets, which represent 0.4% of GDP.

The report, commissioned by think-tank The UK in a Changing Europe, examined the economic consequences of the withdrawal agreement and political declaration agreed between the British Government and Brussels.

It also looked at the likely impact of a no-deal divorce.

But it did not factor in the expected impact of any short-term disruption to trade from a cliff-edge departure next March.

Professor Anand Menon, director of the think-tank, said the economic modelling needed to be treated with "appropriate caution" but did "provide a clear indication of the broad scale of the impact of the deal negotiated by the prime minister".

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Professor Jonathan Portes, senior fellow of the group, said: "The Brexit deal would leave us in a customs union with the EU for the indefinite future - but it is a long way from frictionless trade.

Brexit draft deal: The key points explained
Brexit draft deal: The key points explained

A breakdown of the most important points from the prime minister's 585-page proposed agreement.

"The additional trade barriers, combined with reductions in both skilled and unskilled migration from the end of free movement, would leave the UK significantly smaller than it would otherwise have been over the medium to long term."

The Bank of England, the Treasury and the Financial Conduct Authority are expected to set out their assessments of the economic impact of Brexit over the next couple of weeks ahead of a parliamentary vote on Mrs May's deal.