Insight
The cost of Brexit to December 2018: Towards relative decline? by John Springford 30 March 2019
The UK economy is 2.5 per cent smaller than it would be if Britain had voted to remain in the European Union. The knock-on hit to the public finances is £19 billion per annum – or £360 million a week. The latest update of the Centre for European Reform’s cost of Brexit calculation, which covers the period from the referendum to the fourth quarter of 2018 shows a slight increase compared to our third quarter estimate, which put the cost at 2.3 per cent. The cost of Brexit to date is borne of uncertainty about the future relationship between Britain and the EU, and reflects the gridlock in Westminster which has led to a delay in the planned March 29th departure date. Britain’s decision to leave the EU has 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. In this note, I will briefly outline the latest results, and then propose some political lessons that we should learn from Britain’s economic experience since the referendum. Our estimate has grown slightly because UK growth underperformed that of our ‘doppelgänger UK’ –a group of countries whose economic characteristics match Britain’s (principally the US, Germany, and Luxembourg). As these countries did not hold a referendum in 2016, we can compare them to the UK to assess the cost of Brexit. The countries in the doppelgänger were selected by a computer program based upon the similarity of their economies to Britain’s. The data the program used to make its selection includes quarterly real GDP and other economic indicators, such as inflation and the size of different economic sectors, starting in the first quarter of 2009. Once the doppelgänger has been selected, we can chart how it compares to the real UK, both before and after the referendum. (More information about the method we use is available here.) Chart 1 shows that the doppelgänger closely matched the economic growth of Britain until the referendum vote, but then the two series diverged. The cost of Brexit is the difference between the doppelgänger’s growth and the UK’s actual growth data. Our latest estimate shows that the economy is
CER INSIGHT: The cost of Brexit to December 2018: Towards relative decline? 30 March 2019
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