The Brexit vote has already inflicted a hit of almost £20bn on the UK economy – or around £300m for each week since the June 2016 referendum, according to a new analysis.
A team of four economists affiliated to the respected Centre for Economic Policy Research estimated what the likely path of the UK economy would have been if the referendum result had gone the other way.
Benjamin Born, Gernot Muller, Moritz Schularick and Petr Sedlacek created a computer algorithm to crunch historic data on the degree to which UK output tracked peer economies in the OECD between 1995 and 2016, in order to produce a credible “counterfactual” path for the economy after June 2016.
The difference between this UK “doppelganger” counterfactual, and the actual path of UK GDP by the third quarter of 2017, is 1.3 per cent of GDP, or around £20bn.
Dividing this £20bn figure by the 66 weeks since the Brexit vote gives the figure of around £300m.
The Brexit cost so far
The Vote Leave campaign had notoriously claimed in the referendum campaign that quitting the EU would free up around £350m a week of extra funding for UK public services.
Extrapolating the CEPR economists’ exercise to the end of 2018 implies a cost to the UK economy of £60bn, or 2.2 per cent of GDP.
The economists said their estimates show the evolving costs of Brexit “in an unbiased, transparent, and entirely data-driven way”.
The UK economy has slowed since the end of last year, with the annual rate of GDP growth in the third quarter of 2017 falling to just 1.5 per cent, the weakest since 2013.
This has come at a time when the UK’s peer developed economies in Europe and the US have seen growth picking up strongly.
A spike in UK inflation, stemming mainly from the record slump in sterling in the immediate wake of the Brexit vote, has hit real household incomes and curbed spending.
Surveys also show that UK companies have been putting their investment plans on ice while they wait to see the outcome of the UK’s negotiations Brexit with the rest of the EU, and the implications for future trade arrangements.
The Treasury’s official forecaster, the Office for Budget Responsibility, projected last week that the UK would grow just 1.5 per cent in 2017 as a whole, a downgrade from the 2 per cent expansion it had expected in March. GDP growth in 2018 is seen falling further to 1.4 per cent.
Other teams of economists have also been analysing the costs of the Brexit vote to date.
A report by the London School of Economics’ Centre for Economics Performance earlier this month estimated that the Brexit-related spike in inflation in the UK had already cost the average UK household around £400 a year.
The UK is set to formally leave the EU in March 2019, and the view of the vast majority of the economics profession is that this will inflict long-term damage on the UK economy, although the degree of harm will depend on the degree of trade and regulatory disruption Brexit ultimately entails.