January 27, 2019
By John Springford
The UK economy is 2.3 per cent smaller than it would have been had Britons voted to stay in the European Union. The latest update of the Centre for European Reform’s Cost of Brexit analysis, for the third quarter of 2018, shows the uncertainty triggered by the decision to leave the EU is weighing on economic activity even before the UK is due to exit the bloc, as the Remain camp warned before the referendum. The knock-on hit to the public finances, due to lower tax revenues, is £17 billion per annum – or £320 million a week. The CER has created a statistical model that tracks how the UK economy would have performed had the 2016 referendum gone the other way which can then be compared with actual economic data to quantify the cost of Brexit. The latest estimate shows the economy was 2.3 per cent smaller by the end of the third quarter of 2018 than it would have been if the UK had voted to remain in the EU. That compares with a 2.5 per cent gap at the end of the second quarter and 2.1 per cent drop at the end of the first. The fall in the cost of Brexit in the third quarter is mostly due to a slowdown in Germany, which led to a weaker performance by the CER’s ‘doppelgänger UK’ model. But the latest CER cost of Brexit estimate equates to £17 billion additional public sector borrowing on an annualised basis. The CER used the UK government’s November 2018 Brexit analysis, which found that 1 per cent of lost GDP growth results in £7.3 billion of extra borrowing.