How has Brexit affected business investment in the UK?

John Springford for the Centre for European Reform conducts a ‘doppelgänger’ analysis to explore the costs of Brexit. This analysis uses statistical techniques to find the best combination of other countries that match a range of economic variables for the UK before the referendum, and uses this same combination to project what might have happened thereafter. The input data cover 22 other advanced economies, and the algorithm aims to match data on a range of variables, including economic growth, inflation, investment and trade.

Using this method, John estimates a doppelgänger of investment (total investment, not just business investment), which (see Figure 2) looks remarkably similar to our counterfactual from Figure 1. The doppelgänger grows at about 1% per quarter between 2016 and 2019, and also exhibits a decline and rebound during the pandemic. He estimates that the UK shortfall in total investment in the second quarter of 2022 is 11%, remarkably close to our 10% for business investment for the same period.