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Title: The Fall in UK Potential Output due to the Financial Crisis: a Much Bigger Estimate

Author(s): Nicholas Crafts

Publication Date: January 2019

Keyword(s): austerity, Brexit, financial crisis and Potential Output

Programme Area(s): Economic History and Macroeconomics and Growth

Abstract: Conventional estimates suggest that the 2007-9 financial crisis reduced UK potential output by 3.8 to 7.5 per cent of GDP. This implied a need for fiscal tightening as the structural budget deficit had increased considerably. The austerity that followed led to the rise of UKIP, the EU referendum and the vote for Brexit. Brexit will reduce potential output by somewhere between 3.9 and 8.7 per cent of GDP. Thus, it can be argued that the total fall in UK potential output due to the banking crisis is approximately double the conventional estimate.

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Bibliographic Reference

Crafts, N. 2019. 'The Fall in UK Potential Output due to the Financial Crisis: a Much Bigger Estimate'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13428