LONDON — Following the Brexit referendum in 2016, Britain has shown a comparative economic underperformance in contrast to other advanced economies, as per a recent analysis by Goldman Sachs.
The report, titled “The Structural and Cyclical Costs of Brexit,” endeavors to measure the economic impact of the Leave vote.
In a recent note titled “The Structural and Cyclical Costs of Brexit,” the Wall Street Bank estimates that the U.K. economy grew 5% less over the past eight years than other comparable countries.
The actual blow to the British economy could range from 4% to 8% of real gross domestic product (GDP), according to the bank, recognizing the challenges in isolating the impact of Brexit amid concurrent economic occurrences such as the COVID-19 pandemic and the 2022 energy crisis.
Real GDP, a growth measure adjusted for inflation, serves as the yardstick for this assessment.
Goldman Sachs identified three primary factors contributing to the economic setback: diminished trade, decreased business investment, and labor shortages stemming from reduced immigration from the EU.
A spokesperson from the Treasury has said that the government was actively leveraging post-Brexit freedoms to bolster economic growth, which includes the repeal of EU financial services regulations.
This move, the spokesperson contended, has the potential to unlock an estimated £100 billion in investment over the coming decade.
The United Kingdom chose to leave the EU with a 52% to 48% vote on June 23, 2016 and officially departed from the union on January 31, 2020.
During this span until the present day, U.K. goods trade has lagged behind other advanced economies by approximately 15% since the Leave vote, according to the bank’s calculations. Additionally, business investment has fallen significantly below pre-referendum levels.
Meanwhile, immigration from the EU has decreased, fulfilling a central promise of the Vote Leave campaign. However, this decline has been offset by a less economically active group of non-EU migrants, predominantly students, according to the research.
“Taken together, the evidence points to a significant long-run output cost of Brexit,” stated the authors of the report.
The bank observed that the decrease in trade aligned with predictions, while the shortfall in investment was “more pronounced” than initially anticipated.
Nevertheless, it highlighted that the changes in immigration trends carried the most significant cyclical implications for the U.K. economy, particularly concerning inflation.
While the report highlighted that fresh non-EU trade agreements might potentially alleviate the expenses of Brexit, assessments indicate that the advantage is expected to be minimal.
The British government approximates that its free trade agreement with Australia will enhance U.K. GDP by 0.08% annually, whereas the economic ramifications of a recent trade deal with Switzerland remain uncertain.
Meanwhile, the schedules for potential new trade agreements with significant partners like the U.S. and India have not been done yet.
