Brexit Cost UK Economy 6%, Bank of England Data Suggests

The United Kingdom's economy has experienced a 6% reduction due to the effects of Brexit, according to an analysis of internal Bank of England data that examined the decisions, views, and financial results of thousands of British companies since the 2016 referendum.

The study reconstructed potential economic growth for the UK had it remained in the European Union, utilizing data typically employed by the Bank for interest rate decisions. Researchers found that approximately half of the economic impact stemmed from the initial surprise and uncertainty following the referendum. The remaining half was attributed to increased trade barriers that arose after the UK departed the EU's customs union and single market in 2021.

Professor Nick Bloom of Stanford University, a co-author of the study, stated that the UK had experienced robust growth in the years preceding Brexit and could have maintained a similar trajectory to the United States without the disruption. He emphasized that the Bank of England's company data provided significant corroboration for these findings.

The paper concludes that "In the case of Brexit, there was a substantial economic impact on the United Kingdom, but it arose gradually over the subsequent decade." This conclusion aligns with recent increased candor from senior Bank of England officials regarding Brexit's economic consequences in public statements and interviews.

Bank of England Governor Andrew Bailey has previously stated that Brexit has led to a "lower level of activity and growth in the economy." He explained that reducing the size of export markets negatively impacts growth, affecting productivity and market size as well. However, Bailey also noted that while the impact on financial services was "not good," it was "nowhere near as detrimental as many people predicted at the time."

Some policy economists have raised concerns that it is challenging to precisely model the UK's growth trajectory without Brexit and that such studies may overstate the impact, particularly given the context of numerous global crises over the past decade. The study's findings are being released in proximity to the ten-year anniversary of the Brexit referendum.

The research incorporated company-level data alongside five more traditional analytical methods. While the company data points to a 6% economic hit over a decade, broader studies suggest an average impact of 8%. The study, co-authored by Bloom and Bank of England economists, accessed the institution's data, though it includes a disclaimer stating that "the views expressed do not necessarily represent those of the Bank of England."

The Decision Maker Panel data, typically used to inform interest rate settings, was established by the Bank of England in 2016 specifically to provide insights into the economic effects of Brexit. The authors analyzed years of responses to track firms' exposure to various Brexit-related factors, reported impacts, and changes in their financial accounts.

In related political developments, Prime Minister Keir Starmer is scheduled to meet with EU counterparts in July to negotiate agreements on food and farm exports, as well as electricity and emissions trading, with further areas of cooperation anticipated.

Critics of the study have suggested it may not fully account for the outperformance of U.S. investment and tech sectors or the European energy crisis that occurred four years ago.