Brexit four times worse for UK economy than previously believed, say MIT economists

New research claims leaving the EU will have bigger impact on UK productivity than had been thought

Lucy Meakin
Wednesday 08 February 2017 17:49
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Small firms looking to expand overseas say they need clarity on Britain’s future in Europe
Small firms looking to expand overseas say they need clarity on Britain’s future in Europe

Britain’s departure from the European Union could cause output losses of as much as 9.5 per cent, according to new research.

Calculations using models that incorporate productivity measures show a negative impact on gross domestic product per capita of almost four times that of previous estimates, according to John Van Reenen, a professor of applied economics at the MIT Sloan School of Management who supported the campaign for the UK to remain in the EU.

That’s because increased costs of doing business with the rest of Europe -- which accounts for about half of all UK trade -- will mean lower levels of commerce and foreign investment, and thus lower average incomes in Britain, he said.

“The cost is going to be way bigger than the amount we currently send to Europe,” Van Reenen said in an interview on Bloomberg Television’s Surveillance with Tom Keene and Francine Lacqua. “By splitting more away from the rest of Europe, we’ll lose foreign investment, we’ll lose some trade and the consequences will actually be negative for our productivity.”

The UK economy has so far shown unexpected resilience following the vote to leave the trading bloc. Growth beat expectations again in the fourth quarter, coming in at 0.6 per cent, although the expansion is still being almost entirely driven by services and consumer spending, continuing the lopsided trend of recent years.

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The Bank of England predicts growth will slow this year as the weaker pound fuels inflation and uncertainty over Brexit negotiations hinders investment.

“People often underestimate the benefits of having trade and foreign investment, and overestimate the costs, I think, of having immigration,” Van Reenen said. Britons “don’t realize that there are a lot of benefits to having good trade, that by having highly open trade with other countries this can be very beneficial and raise living standards.”

Bloomberg

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