Brexit has cost you £1,500 so far, here's how

Forget the end result. Here’s how the uncertainty around Brexit has already affected your wallet

Pro-Brexit flags fly from a fishing boat moored in Ramsgate (AFP/Getty)

A major report, released alongside an avalanche of jittery economic data out this week, suggests the UK’s economic slowdown as a result of Brexit uncertainty has cost British households thousands of pounds each in lost income.

Household incomes are around £1,500 a year lower today than forecasts made before the referendum vote. According to new analysis of official growth figures compared with independent forecasts, the UK’s economic performance currently comes in at around a third of the country’s 0.7 per cent long-term trend growth rate.

The UK economy grew by just 0.2 per cent between October and December last year according to the official GDP measure. Down from 0.6 per cent in the previous three months, that means the UK economy was around 1.2 per cent or £23bn smaller than the Office for Budget Responsibility’s (OBR) pre-referendum forecast in March 2016. That’s more than £800 for every household in the UK.

In fact, the UK has experienced the sharpest income growth slowdown of any economy for which the OECD publishes data, warns independent think tank the Resolution Foundation. Its “counting the cost” report focuses on the UK’s economic performance and the subsequent impact on living standards since the referendum.

“While the UK economy today faces headwinds from a recent global growth slowdown, our underperformance since 2016 is largely a UK-specific issue with global growth over the whole period actually outperforming pre-referendum expectations,” the report warns. “The UK has gone from being one of the fastest-growing economies in the G7 pre-referendum to one of the slowest.”

But simply looking at GDP for a clue to the impact of the original vote on real life and the political uncertainty that followed just won’t cut it. The UK’s strong performance on employment since the referendum has been outweighed by higher inflation and weaker nominal pay growth, which culminated in the unwelcome return of falling real pay and household incomes.

By the end of 2018, real household disposable income was £1,500 a year lower than the OBR’s pre-referendum forecast. More than half of that hit to our incomes was due to higher-than-forecast inflation.

The report adds that while income growth across most advanced economies has underperformed in recent years, the UK has experienced the biggest slowdown of all, from 4.9 per cent in 2015 to -0.1 per cent in 2017. Had household incomes grown in line with other advanced economies they would have been £2,000 higher in 2017.

“Reasonable people will disagree about exactly how much of the post-referendum income hit they wish to attribute directly to the UK’s vote to leave the EU, but it is very hard to escape the conclusion that it is by far the single biggest cause,” the report carefully asserts.

“While the eventual impact of Brexit on living standards will be determined by the UK’s long-term relationship with the EU, families are being affected in the here and now. And with rising political uncertainty feeding through into measures of economic uncertainty, the size of the hit to family incomes today is being affected not just by the kind of Brexit we choose but the process by which we get there.”

Whatever people’s views on Brexit, the foundation is now urging policymakers to recognise how much is at stake from the process itself. How the country uncouples itself from Europe, rather than simply the end result, is making a critical difference to people’s wallets.

“Two and a half years since the UK voted to leave the European Union, the country’s post-Brexit position remains far from clear,” says James Smith, research director at the Resolution Foundation.

“There has been much discussion about the impact of this uncertainty on businesses, but not enough about its effect on household incomes.

“The UK’s stark underperformance on income growth since 2016 – which has tailed off more than other advanced economies – has left UK households taking a £1,500 hit to their living standards.

“As we approach ‘Brexit day’ on 29 March, politicians in all parties need to recognise how much is at stake for family living standards, and that how the country goes forward, not just where it is heading, matters for household incomes in the here and now.”