Report

What can we know about the cost of Brexit so far?

This report from UK think tank the Centre for European Reform looks at how far the UK is lagging behind compared to similar economies.

Covid-19 made it hard to isolate the impact of Brexit on the UK economy. But now that the most advanced economies have re-opened and have surpassed their pre-pandemic level of output, we can compare their performance to that of the UK. In a new report, ‘What can we know about the cost of Brexit so far?’, John Springford of the Centre for European Reform has estimated ‘doppelgängers’ – baskets of rich countries with the most similar economic characteristics to the UK – to estimate how far Britain is lagging behind. In the final quarter of 2021, UK GDP was 5.2 per cent smaller than the modelled, doppelgänger UK; investment down by 13.7 per cent; and goods trade by 13.6 per cent. Not all of the weakness in GDP can be ascribed to Brexit, but most of it can. Britain had an exceptionally large recession in 2020. But the UK’s early vaccination campaign meant its restrictions ended sooner than in many peer economies. And the downward trend had already begun between the referendum vote and the pandemic, with the UK’s GDP lagging 2.9 per cent behind the doppelgänger’s by the end of 2019. By contrast, the hit to investment is obviously the result of Brexit: it clearly began at the point of the referendum. And goods trade fell back when the UK left the single market and has trailed the doppelgänger since then. John uses a similar model to his widely-cited monthly estimates of the impact of Brexit on goods trade. An algorithm selects baskets of countries whose economic performance closely matched the UK’s from the first quarter of 2009 to the Brexit referendum of 2016 (in the case of GDP and investment) and the end of the transition period in December 2020 (in the case of goods and services trade).