Economic Fallout from Brexit Examined
A new economic analysis, drawing on extensive internal data from the Bank of England, suggests that Brexit has resulted in a 6% reduction in the UK's economic output. The study, which utilized information regarding the operational decisions, perspectives, and financial outcomes of thousands of British companies since the 2016 referendum, aimed to quantify the lost growth by modeling how the UK economy might have performed had it remained within the European Union.
The research indicates that approximately half of this economic setback stemmed from the initial shock and uncertainty that followed the referendum. The remaining portion is attributed to the increased trade barriers that emerged after the UK's departure from the customs union and single market in 2021.
Methodology and Findings
Co-authored by British Professor Nick Bloom of Stanford University and economists at the Bank of England, the study is notable for its innovative use of the Bank's proprietary Decision Maker Panel data. This dataset, typically employed to inform interest rate decisions, was specifically established in 2016 to monitor Brexit's economic consequences. By tracking firms' exposure to various aspects of Brexit, reported impacts, and changes in their financial accounts over several years, the authors were able to provide a detailed assessment.
Professor Bloom commented that the UK's strong growth trajectory prior to Brexit suggests it could have, at least partially, kept pace with the US economy without the disruption. He emphasized that the Bank of England's company data provides crucial validation for their findings. The paper concludes that while Brexit had a significant economic impact on the UK, this effect manifested gradually over the subsequent decade.
Perspectives from the Bank of England and Critics
Bank of England officials have become more direct in recent months regarding Brexit's economic implications. Governor Andrew Bailey stated that the level of economic activity and growth has been lower due to Brexit, primarily because reducing the size of trading markets negatively impacts growth and productivity. However, he noted that the impact on financial services, while not positive, was less severe than many initially predicted.
Despite these findings, some economists argue that accurately modeling the UK's economic trajectory without Brexit is challenging, especially amidst numerous global crises. They suggest that such studies might overstate Brexit's impact. The latest version of the study, released ahead of the 10-year anniversary of the referendum, combined the company-level data with five traditional analytical methods. While the company data points to a 6% hit over a decade, broader studies referenced in the paper suggest an average impact closer to 8%.
Future Engagement
In a related development, Prime Minister Keir Starmer announced plans to meet with EU counterparts in July to discuss agreements on food and farm exports, as well as electricity and emissions trading, indicating a potential for further cooperation and alignment.
Source: Brexit cost 6% of UK economy, Bank of England company data suggests