Insight
The cost of Brexit to September 2018 by John Springford 27 January 2019
The UK economy is 2.3 per cent smaller than it would be if the UK had voted to remain in the European Union. The latest update of the Centre for European Reform’s calculation of the cost of Brexit in the third quarter of 2018 shows a slight reduction compared to our second quarter estimate, which put the cost at 2.5 per cent. The knock-on hit to the public finances is £17 billion per annum – or £320 million a week. Our estimate has dipped slightly because UK growth outperformed that of our ‘doppelgänger UK’ – a group of countries whose economic characteristics match Britain’s. As these countries did not hold a referendum in 2016, we can compare them to the UK to assess the cost of Brexit. The British economy grew by 0.6 per cent in the three months to September 2018, its fastest rate since the last quarter of 2016. But our doppelgänger includes Germany, which had a bad third quarter, with its economy shrinking by 0.3 per cent. Quarterly GDP growth is variable, and poor performance in one country in one quarter can affect the results. This is why it is important to interpret this analysis as a central estimate with a margin of error around it, as discussed below. However, the basic story is unchanged: Britain’s decision to leave the EU damaged growth, largely thanks to higher inflation and lower business investment. The UK missed out on a broad-based upturn in growth among advanced economies in 2017 and early 2018. And the economic cost of the decision so far is sizeable, if not disastrous. The data that makes up the UK doppelgänger is selected by a computer program from a group of 22 advanced economies. It includes quarterly real GDP and other economic indicators, going back to the first quarter of 2009. Once the doppelgänger is created, we can chart how it compares to the real UK, both before and after the referendum.
CER INSIGHT: The cost of Brexit to September 2018 27 January 2019
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