- The U.K. economy is now 5% worse off than it would have been if it had never left the European Union, according to a study by Goldman Sachs.
- The slump in trade and investment since the Brexit referendum in 2016 has led to a stagnation in the U.K.’s GDP per capita.
- The U.K. has experienced higher inflation than rival advanced economies, with consumer prices up by 31% since 2016.
- Trade volumes have dropped, resulting in lower exports of goods to both the E.U. and the rest of the world.
- Investment in the U.K. has stalled since Brexit, and overall investment is 5% lower than if Britain had never left the E.U.
- The drop in E.U. migration has tightened the U.K.’s labor market, exacerbating inflation in the country’s economy.
- The U.K.’s push to increase high-skilled workers and reduce low-paid workers post-Brexit could boost long-term productivity.
- New trade deals with countries outside the E.U. may help mitigate the long-term costs of Brexit, but the reduction in trade to the European bloc will still have a significant impact.
Introduction
A new study by Goldman Sachs reveals that the U.K. economy is 5% worse off than it would have been if it had never left the European Union. The slump in trade and investment since the Brexit referendum in 2016 has led to a stagnation in the U.K.’s GDP per capita. Additionally, the country has experienced higher inflation than rival advanced economies. This article explores the impact of Brexit on the U.K. economy and its implications for trade, investment, and the labor market.
Economic Insights
Trade Drop and Lowered Investment
The study by Goldman Sachs highlights that the U.K.’s trade volumes, including both imports and exports, are approximately 15% lower than in comparable countries. This decrease is primarily attributed to higher trade barriers with the E.U. and the resulting shift in supply chains. As a result, Britain’s exports of goods to both the E.U. and the rest of the world have significantly declined since Brexit. However, the country’s services exports, which account for 40% of total exports, have remained relatively stable.
Investment in the U.K. has also stalled since Brexit, with overall investment being 5% lower than it would have been if Britain had never left the E.U. Uncertainty following the referendum and the impact on hard-hit companies have contributed to this slowdown in investment.
Labor Market Impacts
One of the significant consequences of Brexit is the drop in E.U. migration, which has reduced elasticity in the U.K.’s labor market. Prior to Brexit, most migration into the U.K. was from E.U. migrants moving for work. However, the proportion of people entering the U.K. as students has increased, having less impact on boosting the country’s labor force.
This lack of migration has led to a tightening of the U.K.’s labor market, exacerbating inflation in the country’s economy. The study suggests that the U.K.’s post-Brexit efforts to increase flows of high-skilled workers and reduce flows of low-paid workers may help boost the country’s productivity in the long run.
Conclusion
The Goldman Sachs study highlights the negative impact of Brexit on the U.K. economy, including lower trade volumes, decreased investment, and increased inflation. While the U.K. may see an uptick in investment as uncertainty around Brexit resolves and new trade deals are established, the reduction in trade with the European bloc is likely to outweigh any potential benefits. The long-term costs of Brexit will continue to impact the U.K. economy, requiring strategic measures to mitigate these effects and support future growth.
