The true costs of Brexit and COVID on the UK economy

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Brexit has “severely dampened” Britain’s economy, the Center for European Reforms has said. Photo: Paul Faith/AFP via Getty

Brexit and the coronavirus pandemic have shrunk the UK economy by billions of pounds as growth slows, according to analysis by the Center for European Reform (CER).

The think tank concluded that gross domestic product was down £31bn, or 5.2%, compared to UK economic peers at the end of last year.

It compared the UK to 22 wealthy world economies from the start of 2009 to the end of 2021, with countries or “doppelgängers” providing an underground economy as a benchmark.

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

The CER pointed to Brexit as the catalyst for Chancellor Rishi Sunak’s decision to raise taxes to “their highest share of GDP since the 1960s”.

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

Springford added: “It is difficult to disentangle precisely the impacts of Brexit and COVID on the UK economy, but it is difficult to avoid the conclusion that Brexit has significantly reduced GDP, investment and trade in goods. .

“Brexit is the main reason why Rishi Sunak is raising taxes to their highest share of GDP since the 1960s. As the Chancellor says higher National Insurance contributions will fund health services and care these tax increases would not have been necessary had the UK remained in the EU.”

UK GDP vs. average of 22 other advanced economies.  Chart: TCC

UK GDP vs. average of 22 other advanced economies. Chart: TCC

According to the study, UK business investment was 13.7% lower than peers including the US, Germany and New Zealand. Trade in goods fell by 13.6%, while trade in services increased by 7.9%.

Read more: Rishi Sunak accused of wasting £11bn on public debt blunder

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

The Bank of England also warned that Britain faces a protracted downturn caused by high inflation that will eat away at household purchasing power over the next few years, worsening the contraction in the labor market.

Springford’s report says this can be attributed in part to Brexit but mainly to the pandemic.

“The end of free movement has reduced the supply of labour, but the number of UK workers who have become inactive during the pandemic has had a much bigger effect,” he said.

“Brexit’s impact on inflation is small compared to global increases in the prices of manufactured goods, energy and other commodities.”

“Import price inflation has been similar in the eurozone and the UK, despite the sharp drop in UK imports of goods from the EU following its exit from the single market and customs union. .”

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

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