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Brexit cost UK economy billions in lost trade and investment

·3-min read
Brexit has 'severely curtailed' the UK economy the Centre for European Reforms has said. Photo: Paul Faith/AFP via Getty
Brexit has 'severely curtailed' the UK economy, the Centre for European Reforms has said. Photo: Paul Faith/AFP via Getty

Brexit and the coronavirus pandemic are said to have reduced the UK economy by billions of pounds as growth slowed, according to analysis from the Centre for European Reform (CER).

The think tank concluded that gross domestic product shrank by £31bn, or 5.2%, compared with the UK's economic peers by the end of last year.

It compared the UK with 22 rich-world economies from the start of 2009 to the end of 2021, the countries or "doppelgängers" provide a shadow economy as a point of reference.

"The ‘doppelgänger’ method is useful because it creates a counterfactual economy whose GDP growth and other variables are most similar to Britain’s before the referendum," John Springford, author of the research said.

The CER pointed the finger to Brexit being the catalyst for chancellor Rishi Sunak's move to hike taxes to "their highest share of GDP since the 1960s".

Read more: UK braced for more economic gloom amid rising inflation and falling investment

Springford added: "It is difficult to disentangle the impacts of Brexit and COVID on the UK economy with precision but it is hard to avoid the conclusion that Brexit has severely curtailed GDP, investment and goods trade.

"Brexit is the main reason why Rishi Sunak is raising taxes to their highest share of GDP since the 1960s. While the chancellor says increased national insurance contributions will fund the health service and social care, these tax rises would not have been needed if the UK had stayed in the EU."

UK GDP compared to the average of 22 other advanced economies. Chart: CER
UK GDP compared to the average of 22 other advanced economies. Chart: CER

According to the study, UK business investment was 13.7% lower in comparison with its peers, including the US, Germany and New Zealand. Trade in goods fell 13.6%, while trade in services was running 7.9% higher.

Read more: Rishi Sunak accused of wasting £11bn in government debt blunder

It comes as the Organisation for Economic Co-operation and Development (OECD) forecast UK growth to stagnate at 0% in 2023, making it the worst developed-world economy next year.

The Bank of England has also warned that Britain is facing a prolonged downturn caused by high inflation eating into household spending power over the coming years, adding to a shrinking labour market.

Springford's report said this can be attributed partly to Brexit but mainly to the pandemic.

"The end of free movement has reduced labour supply but the number of British workers becoming inactive over the pandemic has had a much larger effect," he said.

"The impact of Brexit on inflation is small in comparison to global price hikes in manufactured goods, energy and other commodities."

"Import price inflation has been similar in the eurozone and the UK, despite the large decline in Britain’s goods imports from the EU after it left the single market and customs union."

The Office for Budget Responsibility expects the effects of Brexit to be larger than those of the pandemic.

Watch: What is a recession and how do we spot one?

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