The economic damage of coronavirus restrictions has become less severe as companies and the public are now “better adapted”, MSPs have heard.
However Richard Hughes, chairman of the Office for Budget Responsibility (OBR), said border disruption following the end of the Brexit transition period appears to be worse than anticipated.
Mr Hughes gave evidence to Holyrood’s Finance Committee on Wednesday, saying both Brexit and the pandemic have created “extraordinary uncertainty” about the UK’s economic outlook.
He said the impact of the pandemic has largely been even around the different parts of the UK, though more detailed analysis will be published by the OBR in March.
Mr Hughes said: “One bit of positive news that we have had in the near term is the fact that the economy only shrank by 2.5% in November.
“That was compared with a much bigger fall assumed in November during the second lockdown (in England).
“This suggests that consumers and businesses are becoming better adapted to lockdown conditions and operating under lockdown conditions.”
He said economic activity was around 8.5% lower than pre-pandemic levels in November, compared to a 20% fall during the first lockdown.
The OBR’s central assumption is that public health restrictions will be lifted in the second half of 2021, but Mr Hughes said this will have to be revisited in light of the new Covid-19 strain.
On the EU exit, he said the agreement struck on Christmas Eve had avoided a further 2% fall in output associated with a no-deal Brexit.
He said: “In the near term there does appear to be more disruption at the border than we anticipated in our central forecast.
“Truck volumes in the narrow straits are down by about 30%.
“There’s evidence that there are additional costs and frictions associated with trading with the EU even beyond those that some had anticipated.”
Mr Hughes said it remains to be seen how much the disruption will become a permanent feature of trade with the EU, and how much is related to coronavirus.
The OBR has previously estimated that leaving the EU with a deal would lead to a 4% loss of output for the UK in the long-term.
Mr Hughes said initial evidence and independent analysis has found that estimate to be “broadly right”.
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