Brexit has heaped pain on UK economy and more damage highly likely, researchers warn

Brexit has hurt the UK economy and, in the long term, more pain is on the cards, according to analysis by a government-funded academic think tank.

The report by The UK in a Changing Europe, published on Monday, assesses Brexit’s actual and future effects on inflation, productivity, public finances, and exports and imports.

“There is little doubt that the impact of the Brexit vote on the UK economy has been negative,” the report, called The Brexit Scorecard, finds.

“While huge uncertainties remain about the long-term economic impacts of Brexit, it seems highly unlikely to be positive. The question is how large the damage will be,” it adds, noting a no-deal exit poses particular risks.

The slide in sterling since the referendum has pushed up prices without doing much to boost UK exports, while wage growth has lagged behind inflation, the analysis has found. Authors cite estimates by the London School of Economics and Political Science that the resulting higher consumer prices were costing the average UK household an additional £870 per year by June 2018.

After depreciating sharply in the days following the vote, the pound has remained around 10 per cent below its pre-referendum value. “Of course, higher prices do not make consumers worse off if accompanied by higher incomes. But there is no evidence that the referendum has increased nominal incomes,” the authors write.

But the Brexit hit spreads far beyond consumers. The report quotes calculations by John Springford, deputy director of the Centre for European Reform, suggesting that the UK economy is 2.5 per cent smaller than it would be had Britain voted to remain in the European Union. The research by Mr Springford, published in March, puts a figure on what this reduction has meant for government finances.

“The Treasury estimates that 1 per cent of foregone GDP results in £7.6bn of extra borrowing annually – so the cost to the public finances is £19bn a year. That is … a little less than the government spends on transport in England each year,” the research says.

The Brexit Scorecard also looks at how Brexit will affect the public purse once the UK leaves the EU, by netting off Britain’s annual payment to Brussels with EU subsidies, grants and direct flows to the private sector. It concludes that the UK will potentially regain around £7.3bn per year, which works out as £140m per week.

However, the report adds: “If the consensus amongst economists that Brexit will reduce growth is correct, the long-term impact on the public finances, even after taking account of the direct savings above, would be negative.”

The authors also note a “clear consensus” among economists that Brexit will damage UK productivity, “the most important driver of improved living standards over the long term”.

One of the few bright spots from Brexit picked out by the report is a sharp slowdown in house price growth, which has made homes more affordable for those on lower and middle incomes, “although sustained progress will require action on the supply side of the market”.

The Brexit Scorecard also takes stock of the non-economic effects of Brexit, split into “fairness”, which includes public services and housing; “openness” in terms of trade, investment and migration; and “control”, covering things like parliamentary sovereignty and democracy.