On January 31, 2024, in London, England, on the fourth anniversary of the United Kingdom’s official departure from the European Union, pro-EU demonstrators protested against Brexit outside Parliament.
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LONDON — Britain’s post-Brexit performance has “significantly lagged” that of other developed economies since the 2016 vote to leave the European Union, according to new analysis from Goldman Sachs, which seeks to quantify the economic costs of the vote to leave the European Union.
In a report last week titled “The Structural and Cyclical Costs of Brexit,” Wall Street banks estimated that Britain’s economic growth has been 5% lower than that of other comparable countries over the past eight years.
However, the real hit to the UK economy is likely to be between 4% and 8% of real gross domestic product (GDP), the bank said, acknowledging that the impact of Brexit would be drawn from other concurrent economic events including Covid-19. Difficulty influencing. The pandemic and the 2022 energy crisis. Real GDP is a measure of growth adjusted for inflation.
Goldman Sachs attributes the economic shortfall to three key factors: reduced trade; weak business investment; and labor shortages caused by reduced immigration from the EU.
A Treasury spokesman told CNBC the government is “making the most of Brexit freedoms to grow the economy,” including repealing EU financial services law, which it said could unlock 100 billion pounds ($125 billion) in potential investment over the next decade. .
Trade and investment decline
The UK decided to leave the EU on June 23, 2016 by a vote of 52% to 48%, but officially exited the EU on January 31, 2020.
The bank estimates that since the Brexit referendum and until today, UK goods trade has lagged behind other developed economies by about 15%, while business investment is “significantly below” pre-referendum levels.
Meanwhile, immigration from the EU has fallen – a key promise of the Leave campaign – but has been replaced by less economically active groups of non-EU migrants, mainly students, the study said.
The report’s authors said: “Overall, the evidence points to significant long-term output costs from Brexit.”
The bank noted that the decline in trade was in line with expectations and that the underperformance of investment was “more pronounced” than expected. However, it said that shifting immigration patterns constituted the most important cyclical impact on the UK economy, particularly inflation.
The report states: “Post-Brexit changes in immigration flows have reduced the elasticity of the UK’s labor supply, leading to a post-pandemic surge in inflation and signaling a more cyclical future for labor markets and inflationary pressures.”
The report stated that the UK’s real GDP per capita is only slightly higher than the level before the new crown epidemic, and is currently 4% higher than in mid-2016. This compares with 8% in the euro area and 15% in the United States.
At the same time, inflation has increased in the UK over the same period, with UK consumer prices rising by 31% since mid-2016, compared with 27% in the US and 24% in the euro zone.
While the report notes that new non-EU trade deals may ease the costs of Brexit, estimates suggest the benefits are likely to be small.
The UK government estimates that its free trade agreement with Australia will UK GDP grew by 0.08% each year, while the economic impact of a new trade deal with Switzerland is unclear.
Meanwhile, a timetable for new trade deals with key partners such as the United States and India has yet to be announced.
