(Bloomberg) -- Brexit is costing the UK economy £100 billion a year ($124 billion), with the effects spanning everything from business investment to the ability of companies to hire workers.
An analysis by Bloomberg Economics three years after Britain left the European Union paints a bleak picture of the damage done by the way the split has been implemented by the Conservative government.
Economists Ana Andrade and Dan Hanson reckon the economy is 4% smaller than it might have been, with business investment lagging significantly and the shortfall in EU workers widening.
“Did the UK commit an act of economic self-harm when it voted to leave the EU in 2016? The evidence so far still suggests it did,” Andrade and Hanson wrote in a note published Tuesday. “The main takeaway is that the rupture from the single market may have impacted the British economy faster than we, or most other forecasters, expected.”
The findings chip away at Prime Minister Rishi Sunak’s assertion that Brexit is a “huge opportunity” for the UK that’s starting to be realized. Cutting ties with the EU allows Britain to create freeports to spur trade and reform financial services rules to the benefit of banks in the City of London.
“We’ve made huge strides in harnessing the freedoms unlocked by Brexit to tackle generational challenges,” Sunak said in a statement Monday night. “Whether leading Europe’s fastest vaccine rollout, striking trade deals with over 70 countries or taking back control of our borders, we’ve forged a path as an independent nation with confidence.”
The Bloomberg study acknowledges that calculating how much output has been lost due to Brexit is neither “easy nor precise,” not least because leaving the EU coincided with the seismic disruptions caused by the coronavirus pandemic.
However, it is clear that UK economic performance started to diverge from the rest of the Group of Seven following the 2016 vote to leave the EU, and has widened since.
The underperformance is partly explained by business investment as firms put spending decisions on hold because of uncertainty about what life outside the EU would mean. Though some of that caution is dissipating, the UK has a long way to go to close the gap with its major peers. At about 9% of GDP, business investment lags the Group of Seven average of 13%.
The UK economy continues to be blighted by shortages of workers — and Brexit has played no small part.
Hanson and Andrade estimate that there are 370,000 fewer EU workers in employment in the UK than might have been the case had Britain stayed in the single market, a figure only partially offset by the arrival of non-EU citizens.
“Scarcity of labor adds to inflationary pressure in the short-term and constrains potential growth further out,” the economists wrote, “That’s not good news for an economy facing bleak long-term prospects, with trend growth of a little over 1%.”
When it comes to trade, the picture is slightly less negative, with the economists concluding that Brexit doesn’t seem to be leaving a clear mark.
“If for a while it looked like the barriers imposed with the EU in 2021 were driving a wedge between the UK and the G-7’s trade performance, that gap no longer looks as significant,” they wrote.
“Still, trade data has been subject methodological revisions, potentially clouding the comparison. Over the longer term, we would expect trade to bear the brunt of the impact of leaving the single market.”
©2023 Bloomberg L.P.