According to research conducted by a top Bank of England official, the UK has lost £29 billion in corporate investment since the 2016 Brexit referendum, or £1,000 per family.
According to Jonathan Haskel, an external member of the Bank of England’s nine-member monetary policy committee, which determines UK interest rates, private sector investment “stalled” in the years after the decision to leave the EU.
He said that in the aftermath of the referendum, the UK fell behind the trend of the preceding six years and “suffered far more” than other major industrialised countries, resulting in a productivity gap that has left permanent scars.
The analysis by Haskel and his colleagues is expected to reinforce fears that the Brexit vote and former Prime Minister Boris Johnson’s strategy to depart the EU single market and customs union have done irreversible harm to the UK economy.
Last week, a secret cross-party conference was convened by Michael Gove and senior members of Keir Starmer’s shadow cabinet to discuss Britain’s challenges since leaving the EU and what could be done to improve the situation.
The majority of research on the UK’s loss of national revenue, or GDP, has concentrated on trade. According to the Bank of England’s most recent economic forecast, comparing the UK’s present level of trade with the trajectory before the UK formally left the EU in 2019, would equal 3.2% of GDP by 2026.
The Office for Budget Responsibility, the government’s independent economic forecaster, predicted that GDP would be 4% lower in the long term if the UK remained in the EU.
Haskel stated that he handled the calculation differently, using company investment as the gauge rather than trade, and came to a fairly similar result concerning the long-run loss of GDP.
The difference between current levels of company investment and the trend before 2016 would be 2.8% of GDP by the end of the projected period in 2026, “which is quite close to the 3.2% amount we calculated using an entirely different technique based on goods trade volumes,” Haskel added.
“Imagine that business investment hadn’t basically flattened out after the 2016 referendum and instead rose as real investment did in more or less every other country,” he said in an interview with the web newsletter, the Overshoot.
“What you could do is you could ask the computer to sort of simulate what would’ve happened to the capital stock had investment carried on growing at the pre-referendum rate, and then figure out what the gap is between that simulated number and the actual number, which is a consequence of flat investment.”
“If you do all of that, you find that the current productivity penalty is about 1.3% of GDP.” “That 1.3% of GDP is about £29 billion, or roughly £1,000 per household,” he said.
“At the end of the forecast period, the penalty goes up to something like 2.8% of GDP.”