Brexit hampers the UK Growth by £29 billion, says Bank of England rate-setter.
Brexit has a significant financial impact on the nation’s economy, according to Jonathan Haskel. He conducted a study which revealed that since the 2016 Brexit referendum, the UK had lost £29 billion in business investment, or approximately £1,000 per household.
Haskel, a member of the Bank’s nine-person monetary policy committee responsible for setting UK interest rates, stated that private sector investment “came to a halt” in the aftermath of the Brexit vote. He explained that the UK growth decreased substantially compared to other major industrialized economies and opened a productivity gap, resulting in permanent scars.
The study by Haskel and his team increased concerns that the Brexit vote and Boris Johnson’s strategy to leave the EU single market and customs union have caused irreversible damage to the UK economy. A recent cross-party summit involving both leading leavers and remainers discussed the challenges the country has faced since leaving the EU and potential solutions to improve the situation.
In the past, studies examining the impact of Brexit on the UK’s national income or Gross National Product (GDP) have mainly focused on trade. The Bank of England estimates that by 2026, the UK’s current level of trade compared to its trajectory before formally leaving the EU in 2019 will equate to a loss of 3.2% of GDP. Meanwhile, the Office for Budget Responsibility, the government’s independent economic forecaster, predicted that GDP would be 4% lower in the long run than if the UK had remained in the EU.
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Haskel used a different approach in his study, measuring the impact of Brexit using business investment instead of trade. According to his research, the difference between current company investment levels and the trajectory before 2016 would be 2.8% of GDP by 2026. This figure, according to Haskel, is “very close to the 3.2% number we found using a totally different methodology based on goods trade volumes.”
In an interview with the Overshoot, a web newsletter, Haskel stated, “Imagine that business investment hadn’t basically flattened out after the 2016 referendum and instead rose as a real investment did in more or less every other country.” He added that the current productivity penalty would be around 1.3% of GDP, or £29 billion, or nearly £1,000 per family if the investment had kept expanding at the pre-referendum rate. The penalty would rise to almost 2.8% of GDP by the end of the projected period in 2026.
In conclusion, Haskel’s study sheds light on the financial impact of Brexit on the UK economy, specifically the negative impact on business investment and the productivity gap that has arisen as a result. The study’s findings are likely to fuel discussions surrounding the potential long-term effects of Brexit on UK growth.