Brexit has knocked about 6 percent off the size of the UK economy over the past decade, according to economists who analyzed internal Bank of England data covering the decisions, opinions and financial results of thousands of British firms since a 2016 survey.
The study drew on the same intelligence the Bank uses to set interest rates, reconstructing how the UK would have grown had it voted to stay in the EU. Its conclusion is that almost half of the damage came from the shock and uncertainty of the post-negotiation years, with the rest flowing from higher trade barriers that followed Britain’s exit from the customs union and single market in 2021.
For the small and medium-sized companies that make up the bulk of the UK economy, the findings will sound less like an academic review and more like the description of the past decade: thin margins, deferred investment and a steady increase in paperwork at the EU border.
The study was co-authored by British economist Nick Bloom, a professor at Stanford University, and an economist at the Bank of England. Most importantly, this is the first time that the Bank’s granular information on the corporate sector has been disseminated in this way.
That information comes from the Decision Making Panel, a survey the Bank launched in 2016 with the express purpose of measuring the economic impact of Brexit. Normally used to inform interest rate decisions, it allowed the authors to track, year by year, how individual companies were exposed to different parts of Brexit, the impacts they reported, and the changes reflected in their accounts.
Company-level data points to a 6 percent hit over ten years. Considering the other five traditional methods of analysis, extensive research suggests a rough estimate of about 8 percent. The full paper, published by the National Bureau of Economic Research, sets out in detail the economic impact of Brexit, and contains the usual disclaimer that “the views expressed do not necessarily represent those of the Bank of England”.
Bloom says the UK was growing rapidly in the years before the vote and would have been at least as good as the United States but for disruption. The Bank’s corporate identity, he says, provides important validation. His paper concludes that “in the case of Brexit, there was a significant economic impact on the United Kingdom, but it emerged gradually over the following decade”.
Time is remarkable. The Bank’s top figures have come out in the spotlight in recent months on the consequences of leaving the EU, a change tracked by Business Matters as the governor warned that the impact of Brexit will remain negative for the foreseeable future.
Speaking to reporters, governor Andrew Bailey said that because of Brexit, “I think the level of employment and economic growth has decreased.” He continued: “And the reason for that is that if you reduce the size of the markets we trade with, and therefore reduce our export markets, that tends to have a negative impact on growth,” adding that productivity and market size are also affected.
However, Bailey expressed anger at the City’s decision. The impact on financial services, he said, was “not good”, but “nowhere near as dangerous as many people predicted at the time”.
Not everyone accepts a title number. Some policy economists argue that it is inherently difficult to model how the UK would have fared without Brexit, and that such studies are at risk of overstating the effect during a global shock. Critics also say the analysis doesn’t fully capture the outperformance of US investment and technology, or the European energy crisis that has hit over the past four years.
The 6 percent estimate is within the known range. The hit is more than 5 per cent calculated by Goldman Sachs, and is in line with growing evidence that small exporters are struggling, as seen in the £27bn hit to UK exporters where smaller firms are being hit hard.
The latest version of the survey came just before the index’s tenth anniversary, and against a background of smart convergence. Prime Minister Sir Keir Starmer said he would meet his EU counterparts at a summit in July to agree deals on food and farm trade, as well as electricity and emissions trading, with other areas of cooperation and compatibility expected to be on the table.
For British business owners, the music of the political scene is less important than what it ends up bringing to the border. Ten years on from the vote, the lesson buried in the Bank’s own corporate data is still sobering: the costs of Brexit did not come in one spectacular shock, but accumulated quietly, steadily, year after year.
