Brexit referendum: the real “Brexit dividend”? Minus £ 800million a week – and it continues Business News

IIt was a notoriously won vote, at least in part, on money. “We send the EU £ 350million a week,” read the post on the side of the Vote Leave fight bus. “Let’s fund our NHS instead.” The figure referred to an estimate of the UK’s gross contribution to the European Union – in reality there was a lot more at stake in the economy of EU membership, including the money returned by Brussels in the UK and trade benefits.

So, five years after the vote, what has Brexit really meant for the economy?

The UK eventually left the EU’s single market and customs union as part of Boris Johnson’s rudimentary free trade deal with Brussels on December 31, 2020 – a deal that economists say will hold back the UK economy over the next few years compared to sustaining it. the block.

But economists believe the costs of Brexit began to be felt almost from the moment the shock of the Leave referendum victory erupted on the night of June 23, 2016, while David Cameron was still prime minister.

That night saw the biggest daily drop in the value of the pound sterling on record, as financial market traders frantically sold the British currency in anticipation of a drastic economic divorce between Britain and the rest of the continent.

Between June 23 and 27, 2016, the pound sterling fell 11% against the US dollar and 8% against the euro.

This crash instantly raised the price of imported goods.

Analysts at the London School of Economics estimated that as a direct result of this record currency depreciation, UK consumer prices rose 2.9 percentage points in the two years following the referendum, which which has translated into an increase of £ 870 per year in the cost of living for the average UK household.

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The other almost instantaneous impact of the Brexit vote has been a drop in business investment, as many companies have canceled expansion plans due to confusion over the UK’s future trade relationship with the continent.

The deadlock in Parliament after the 2017 general election over what form Brexit should take, if any, has kept business investment extremely low.

Had business investment continued to rise at its pre-referendum rate, it would have been around 10% higher by the end of 2019.

The Brexit vote also appears to have deterred foreign companies from investing in the UK or expanding here.

Analysts at the UK Trade Policy Observatory at the University of Sussex estimated in 2018 that the Brexit vote reduced the number of foreign investment projects in the UK by 16 to 20%.

Business investment contributes to the economy in two ways. First, it boosts overall spending, which helps boost incomes and jobs today. Second, it strengthens the long-term productive capacity of the economy, which will produce higher incomes and more jobs tomorrow.

Historically, investments by multinational companies – of the particularly low type since 2016 – have proven to be very beneficial in this regard.

All of this means that by crushing investment, Brexit will not only have hampered economic growth from what it would have been since 2016, but will also continue to be a drag for many years to come.

Many economists have sought to quantify these negative impacts. Before the pandemic hit last year, many studies looked at the impact of Brexit on the global economy with so-called “doppelganger” modeling exercises.

The purpose was to examine how the UK’s gross domestic product had increased following the Brexit vote compared to other comparable economies (France, Germany, Canada, US, etc.) with the performance with which UK growth had historically been reasonably closely correlated.

Since the UK was the only major country to vote to tear itself away from a deep economic and regulatory relationship with a large neighboring trading bloc, any performance discrepancy between the UK’s expected performance and actual performance could reasonably be attributed to the Brexit vote. .

A number of these studies, using different baskets of comparison savings, have shown a gap in the UK’s economic performance after the referendum due to the decline in business investment and the impact of the fall in the economy. sterling on household spending.

£ 400-800 million

And those studies have indicated Brexit damage by the end of 2019 of between 1% and 2% of GDP, or between £ 20bn and 40bn. That, to put it in the words favored by the Vote Leave party during the referendum campaign, amounts to a loss of between £ 400 million and £ 800million per week.

Economists at the University of Warwick carried out a similar doppelganger modeling exercise, but looking at the impact of Brexit on regions and districts across the UK.

They found a fair amount of variation, with these parts of the UK …