The National Institute of Economic and Social Research (NIESR), Britain’s foremost independent research institute, estimates that the GDP of the United Kingdom (UK) will be 4 percent lower within 10 years after Brexit than it would be if the UK remained in the European Union (EU), according to the NIESR Report released this morning.
The study, which analyzed potential changes in trading partnerships as well as how the deal will affect consumer uncertainty and confidence, suggests that even proposed compromise measures would still lead to a significant curtailing of economic growth for the UK. A 4 percent loss in GDP is roughly equivalent to the entire output of Wales or the loss of the entire financial services industry in London. Such a loss would effectively eliminate 1,000 pounds ($1,280 USD) of annual income per capita from British citizens. Even if the UK were to stay in a proposed customs union with the EU or invoke the Irish backstop position, that would potentially only mitigate about a third of the expected loss, according to the report.
Recent estimates, calculated by the performance of the UK economy compared to relatively similar economies, show that consumer uncertainty has already cost the UK about 2 percent of its GDP compared to what it would have been had the nation remained in the EU following the 2016 referendum. This suggests that perhaps the long-term deleterious effects on the UK economy may be worse than projected.
The British people voted in a referendum in 2016 to leave the EU without first establishing a new trading relationship or setting the terms of withdrawal. The UK is due to leave the EU on March 29, 2019. Negotiations between the UK and the EU reached an agreement just two weeks ago on the terms of the UK’s exit, which has allowed for some clarity in the potential effects of Brexit. It appears likely that the UK will extend a transition period for withdrawal from the EU to December of 2020 before entering into a free trade agreement, though those details have yet to be finalized.
The report’s estimate of significantly reduced economic growth hinges on the concept that greater difficulty in the services trade will make outside sales of services less attractive to foreign buyers, which has the dual effect of decreasing the productivity of UK workers while also discouraging investment in the UK.
Liberal Democratic leader Sir Vince Cable, who supports a second referendum, told the BBC that “Nobody voted for less control or to be worse off but somehow the government have managed to come up with something that will achieve both. This is a million miles from what the Brexiters promised two years ago and will create decades of uncertainty for business and investors.”
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