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UK economy suffering ‘long-term’ cost of Brexit, Goldman Sachs says

Decision to leave shrank the British economy by reducing growth and spurring higher inflation, economists say

EU flags are waved near Elizabeth Tower, commonly called Big Ben. The decision to leave the EU has hit the British economy, economists say. Photograph: Justin Tallis/AFP via Getty Images
EU flags are waved near Elizabeth Tower, commonly called Big Ben. The decision to leave the EU has hit the British economy, economists say. Photograph: Justin Tallis/AFP via Getty Images
Joe Easton
Tue Feb 13 2024 - 07:49

The UK’s decision to leave the European Union shrank the British economy by reducing growth and spurring higher inflation, according to economists at Goldman Sachs Group who compared the country’s performance to similar nations since the referendum in 2016.

The UK’s real GDP has underperformed by about 5 per cent, Sven Jari Stehn and colleagues said in a research note published late Friday. Reduced international trade, weak business investment and a drop in migrants coming from Britain’s largest trade partner have all contributed, they said.

“The evidence points to a significant long-run output cost of Brexit,” they wrote. “The UK has significantly underperformed other advanced economies since the 2016 EU referendum.”

Goldman’s conclusion is broadly in line with other estimates of the impact of Brexit. The UK’s official fiscal watchdog, the Office for Budget Responsibility, said last year Britain’s EU exit likely reduced economic output by 4 per cent. Bank of England policymaker Jonathan Haskel, said a year ago that Brexit had cost every British household £1,000 (€1,175) on average.

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UK prime minister Rishi Sunak has struggled to deliver on his pledge to grow the economy since taking office in late 2022. Economists are split on whether data this week will show the UK tipped into a technical recession late last year.

Still, Goldman said not all of the UK’s economic headwinds can be attributed to Brexit, pointing to the pandemic and the energy crisis following Russia’s invasion of Ukraine as weighing heavily on growth.

Some economists, especially those more in favor of the decision to leave the EU, have argued against using the so-called doppelganger approach to analyzing the impact of Brexit. They, like the UK government, also point to how UK’s real GDP has outperformed Germany and Italy since the referendum. - Bloomberg

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