Brexit and Covid ‘leave UK trailing behind rivals’

Brexit and the pandemic have reduced the size of the UK economy by 5.2 per cent compared with its peers, according to research that largely blames Britain’s exit from the European Union for stunted growth.

Analysis from the Centre for European Reform think-tank found that Brexit was the main driver of weakening growth, falling goods exports and chronically low business investment.

Using a model comparing the UK with similar countries to provide a shadow economy as a point of reference, the analysis concluded that Britain’s GDP was £31 billion, or 5.2 per cent, lower than its “doppelganger” at the end of last year.

“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,” John Springford, author of the research, said.

“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.”

...The Bank has also warned that the country is suffering from a shrinking labour market. This can be attributed partly to Brexit but mainly to the pandemic, according to Springford. “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 report said that business investment was 13.7 per cent lower compared with the UK’s economic peers, who include the US, Germany and New Zealand, and trade in goods was 13.6 per cent lower. Trade in services, however, was running 7.9 per cent ahead.

The analysis compares the UK with 22 rich-world economies from the start of 2009 to the end of 2021. “The ‘doppelganger’ method is useful because it creates a counterfactual economy whose GDP growth and other variables are most similar to Britain’s before the referendum,” Springford said.