Economists: Brexit stunts U.K. growth

The U.K.’s decision to leave the European Union shrank the British economy by reducing growth and spurring higher inflation, according to economists at Goldman Sachs Group Inc. who compared the country’s performance to similar nations since the referendum in 2016.

The U.K.’s real gross domestic product has underperformed by about 5%, Sven Jari Stehn and colleagues said in a research note. Reduced international trade, weak business investment and a drop in migrants coming from Britain’s largest trade partner have all contributed, they said.

“The evidence points to a significant long-run output cost of Brexit,” they wrote. “The UK has significantly underperformed other advanced economies since the 2016 E.U. referendum.”

Goldman’s conclusion is broadly in line with other estimates of the impact of Brexit. The U.K.’s official fiscal watchdog, the Office for Budget Responsibility, said last year Britain’s EU exit likely reduced economic output by 4%. Bank of England policymaker Jonathan Haskel, said a year ago that Brexit had cost every British household $1,260 on average.

Prime Minister Rishi Sunak has struggled to deliver on his pledge to grow the economy since taking office in late 2022. Economists are split on whether data this week will show the U.K. tipped into a technical recession late last year.

Still, Goldman said not all of the U.K.’s economic headwinds can be attributed to Brexit, pointing to the pandemic and the energy crisis brought about by Russia’s invasion of Ukraine as weighing heavily on growth.

Some economists, especially those more in favor of the decision to leave the EU, have argued against using the so-called doppelgänger approach to analyzing the effects of Brexit. They, like the U.K. government, also point to how the U.K.’s real GDP has outperformed Germany and Italy since the referendum.