Britain’s exit from the European Union has been among the country’s most pivotal events in recent times. Politicians pushing for Brexit had lofty goals about how much better Britain would fare when it existed independent of the trade bloc.
But it hasn’t quite played out that way for the economy.
The British economy is 5% worse off since Brexit, which officially happened about four years ago, as it has stalled trade and investment activity in the country, Goldman Sachs economists said in a report Friday.
The Brexit referendum took place in 2016, where millions of Brits cast their vote on whether the country should stay or leave the EU. The Goldman Sachs report compares how the U.K. has fared since that year to similar economies, and found that Britain has “significantly underperformed” its peers.
Britain’s lackluster performance can be seen in how the U.K.’s economy has flatlined since the COVID-19 pandemic. It’s expanded the least since mid-2016 levels—4% in real GDP per capita terms—compared to the rest of the European region and the U.S., the economists led by Sven Jari Stehn said in their note.
The economists use the “doppelgänger approach” by comparing post-referendum Britain with a hypothetical one that remained in the EU. A number of factors have slipped lower since the Brexit referendum, hurting the country’s overall output: the decision to leave EU has hurt trade due to higher costs, impacted the business environment as Britain left the EU single market which created fresh barriers, and has also limited labor supply as immigration from other European countries became more restricted.
“The evidence points to a significant long-run output cost of Brexit,” they wrote. “The U.K. economy has notably underperformed other advanced economies since the EU referendum in June 2016.”
To be sure, other events have also shaped Britain’s economy in recent times including pandemic-linked disruptions and the energy crisis spurred by Russia’s invasion of Ukraine. But Brexit is one that Britain alone faced.
Sights beyond Brexit
The Goldman note aligns with broader findings around Brexit’s economic repercussions. Economics research group NIESR said in a November report that the British economy is performing below baseline estimates in a scenario where it had stayed within the EU—and that impact is set to increase in the coming years.
Brexit’s poor returns in GDP growth terms so far adds to pressures that Prime Minister Rishi Sunak faces in jumpstarting the U.K. economy. Since taking office in 2022, Sunak has spoken about the benefits of a freer Britain following Brexit, but he has faced sky-high inflation and interest rates, which have added to the laundry list of economic pressures weighing on the country.
Last year, the IMF predicted that the U.K., which is expected to face general elections this year, will clock in the weakest growth among G7 economies in 2024. Official data released later this week will reveal if Britain’s economy entered recession territory.
On the bright side, Britain is working on non-EU trade deals which could improve overall trading in and out of the country, Goldman Sachs’s economists wrote. It’s also the responsibility of the next government to chalk out how future relations with the EU will look, they said.