Insight
The cost of Brexit: May 2021 by John Springford 21 July 2021
The Centre for European Reform estimates that leaving the single market and customs union has reduced UK trade in goods by £10 billion or 13.5 per cent in May 2021. Discrepancies between the statistics produced by Eurostat and the UK’s Office of National Statistics (ONS) do not quicken everyone’s pulse, but the difference between the two agencies’ measures of UK-EU goods trade is important. According to Eurostat data, the hit to EU-destined UK exports since it left the single market in January has been far larger than the ONS measures – and larger than the reduced trade that were fed into the UK government’s model, which forecast a 5 per cent hit to GDP per capita from Brexit. If Eurostat is right, Britain might be facing greater Brexit costs than we had anticipated. This new piece in the series on the cost of Brexit will take a closer look at whether the differences in trade data between ONS and Eurostat are creating biases in our estimates. There are good reasons to believe that the ONS is closer to the truth. Before getting into that problem, however, let’s provide the latest estimate from our cost of Brexit model. Using the ONS’s May 2021 data, the model finds that leaving the single market and customs union has reduced total UK goods trade by £10 billion, or 13.5 per cent (see Chart 1). That is up from the previous month, when the gap was 11 per cent. On average, Britain’s imports grew more slowly than the other advanced economies that make up the ‘doppelgänger’ UK between April and May, which explains most of the difference. However, we should not leap to conclusions about one month’s change in either direction, because monthly trade data are volatile. To construct the doppelgänger, an algorithm selects a subset of countries from 22 advanced economies whose trade performance and other economic characteristics closely match those of the UK between 2009 and 2019, before the pandemic struck and sent economic data haywire. These countries did not leave the single market and customs union in January, so they offer a counterfactual path for UK goods trade if the UK had stayed in. More details on how the model works are available here.
CER INSIGHT: The cost of Brexit: MAY 2021 21 July 2021
info@cer.EU | WWW.CER.EU
1