Pro-European Union demonstrators protest outside Parliament against Brexit on the fourth anniversary of Britain's formal departure from the European Union in London, United Kingdom on January 31, 2024.
Future Publishing | Getty Images
LONDON – Britain's post-Brexit performance has been “significantly weaker” than other advanced economies since the EU referendum in 2016, according to a new analysis by Goldman Sachs, which aims to measure the economic cost of a vote to leave the European Union.
In a note last week titled “The Structural and Cyclical Costs of Brexit,” the Wall Street bank estimated that the UK economy grew by 5% over the past eight years compared with other similar countries.
However, the bank said the real hit to the UK economy could be between 4% and 8% of real GDP, acknowledging the difficulties of extracting the impact of Brexit from other concurrent economic events including the coronavirus. Pandemic and energy crisis 2022. Real GDP is a measure of growth that has been adjusted for inflation.
Goldman Sachs attributed the economic deficit to three main factors: a decline in trade; weak business investment; and labor shortages as a result of reduced immigration from the European Union.
A Treasury spokesperson told CNBC the government is “making the most of Brexit freedoms to grow the economy,” including scrapping the EU's financial services law, which it said could open the door to potential £100 billion worth of investment. ($125 billion) over the next decade. .
Trade and investment decline
The United Kingdom voted 52% to 48% to leave the European Union on 23 June 2016, but officially left the Union on 31 January 2020.
Over that period to date, UK goods trade has underperformed other advanced economies by around 15% since the Leave vote, the bank estimates, while business investment has fallen “significantly below” pre-referendum levels.
Meanwhile, migration from the EU – the main pledge of the Vote Leave campaign – declined only to be replaced by a less economically active group of non-EU migrants, especially students, the research said.
“Taken together, the evidence points to a significant long-term production cost of Brexit,” the report’s authors said.
The bank noted that the decline in trade was in line with expectations and that the weak performance in investment was “more pronounced” than expected. However, he said shifts in migration patterns constituted the most significant cyclical implications for the UK economy – and inflation in particular.
“The change in post-Brexit migration flows reduced the elasticity of UK labor supply, which contributed to higher post-pandemic inflation and points to more cyclical labor market fluctuations and inflation pressures ahead,” the report said.
She said the UK's real GDP per capita had barely risen above pre-Covid levels, and was currently 4% above the mid-2016 level. This compares to 8% for the eurozone and 15% for the US.
Meanwhile, the UK recorded higher inflation over this period, with UK consumer prices rising by 31% since mid-2016 compared to 27% in the US and 24% in the eurozone.
While the report suggested that new non-EU trade agreements could mitigate the costs of Brexit, estimates suggest that the benefits are likely to be small.
The British government estimates that a free trade agreement with Australia will boost UK GDP by 0.08% per year, while the economic impact of a new trade deal with Switzerland is unclear.
Meanwhile, timelines for potential new trade deals with key partners such as the US and India have not been announced.
