Goldman Sachs said in a report that Britain’s chaotic exit from the European Union has cost the economy about 600 million pounds per week since the 2016 referendum and underscores how Brexit uncertainty has dented investment. The report said that Brexit had cost the world’s fifth largest economy nearly 2.5 per cent of GDP at the end of last year, compared to its growth path prior to the mid-2016 vote on exiting the bloc. It has also lagged other advanced economies.
“Politicians in the UK are still struggling to deliver on that vote,” Goldman Sachs economists wrote. “The resulting uncertainty over the future political and economic relationship with the EU has had real costs for the UK economy, which have spilled over to other economies.” The US bank said Brexit uncertainty has been a major driver of economic output losses as they are concentrated in investment. “Uncertainty shocks weighed on investment growth in the immediate aftermath of the Brexit vote, as well as more recently amid the renewed intensification of Brexit uncertainty,” the economists said.
The bank’s estimates came as data showed factories in Britain stockpiled for Brexit at an explosive rate last month, unlike anything seen before in a major rich economy and a prelude to a likely sharp investment shortfall ahead.
In a no-deal Brexit, a scenario Goldman sees a 15 per cent chance of, UK GDP would fall by 5.5 per cent and a “substantial” global confidence shock would see sterling depreciate by 17 per cent. European countries would be most exposed to this scenario, the economists estimated, and could see output losses of around 1 per cent of real GDP. A Brexit transition deal would reverse part of Britain’s economic output lag, with limited foreign spill-overs, they said, estimating UK GDP would grow by a cumulative 1.75 per cent and sterling would appreciate by 6 per cent.
A scenario in which Britain remains in the EU after all would see it fully recoup Brexit-related output costs and drive a rebound in business confidence while sterling would appreciate by 10 per cent.
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Overall, the drag from weaker UK growth has been felt most strongly in countries with larger export exposure to the UK, such as Germany and France, the economists said. “While a ‘deal’ would certainly be positive for the UK economy, only ‘no deal’ would trigger substantial spill-over effects, with European countries being most exposed,” they added.