Insight
The cost of Brexit to June 2019 by John Springford 16 October 2019
The UK economy is 2.9 per cent smaller than it would be if the UK had voted to remain in the European Union, according to our latest estimate of the cost of Brexit to the end of the second quarter of 2019. The CER model also shows that the biggest victim of the Brexit vote has been business investment, while the weaker pound has failed to foster the big gains in exports that some Brexiters hoped for. The basic aim of the CER’s cost of Brexit analysis is simple: to compare official UK data to a model that shows how the economy would have performed if Britain had stayed in the EU. We use data from other advanced economies to create a doppelgänger UK that did not vote to leave. An algorithm chooses – from a group of 22 advanced economies – a selection of those countries whose economic characteristics most closely matched those of the UK in the run-up to the Brexit referendum. The countries the algorithm chose were Germany (32 per cent of the doppelgänger), the US (28 per cent), Australia (17 per cent), Iceland (9 per cent), Greece (6 per cent), Luxembourg and New Zealand (4 per cent each). By comparing the UK’s performance to this construct, we can assess whether – and how – the Brexit referendum has hurt the British economy. Chart 1 shows the diverging paths of the doppelgänger and the UK’s official economic data since the referendum. The gap opened up in 2017 and early 2018, when growth rates in most advanced economies accelerated. In usual times, the UK would have participated in such a growth spurt. Following that surge of growth outside Britain, the rate of expansion in the UK and the doppelgänger were similar in late 2018 and the first quarter of 2019. But the UK economy shrank in the second quarter of 2019 by 0.2 per cent, while the doppelgänger grew by 0.7 per cent, so the gap widened.
CER INSIGHT: The cost of Brexit to June 2019 16 October 2019 info@cer.EU | WWW.CER.EU
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