UK economic growth has reportedly slowed by 2.3% since 2016, when the Brexit referendum was running, leading to a decrease in public spending budgets of around £17 billion this year in a new update published by the Centre for European Reform, a Thinktank specialising in European Economic and Political research.
The hit to public spending equals around £320 million a week to the taxpayer, however this estimate is slightly lower than the estimated cost of Brexit to previous estimates of 2.5% of the British economy.
The slight recalculations of the estimated costs were due to UK growth outperforming other countries that matched Britain economically that were used to gauge UK economic performance following the Brexit vote.
The UK economy grew by 0.6% in the final months of 2018, the fastest it has grown since 2016 when the economy was recovering from the initial hits suffered from the immediate market backlash from the results of the referendum, this was coupled with other countries being measured against the UK by the thinktank such as Germany seeing an unusually difficult winter, where the German economy shrank by 0.3%.
The increased uncertainty may be due to UK companies acting more conservative in their spending and growth investment in preparation for the possible economic impacts of the UK fully exiting the EU, and increased inflation, with the UK largely missing out on a general increase in growth felt across Western economies between early 2017 and early 2018.
The data constructs a simulated economy of a “doppleganger” UK made up from the economic information of other Western economies, including the United States, Germany, Luxembourg, Iceland, and Greece, and uses a proportion of each country’s economic performance based on how similar it is to the UK in terms of economic structure and its pre-referendum growth rates. In combination with each other, they very closely match the UK’s pre-referendum economic performance. This “doppleganger” UK is then simulated in the post-referendum market environment and compared to the actual growth rates of the UK economy.
The estimated loss of spending derives from government analyses that a 1% loss of GDP resulted in almost £8 billion extra government borrowing. After increasing this to a loss of 2.3%, this adds up to an estimated £17 billion cut to government spending. This has also been coupled with higher government borrowing in general due to a higher amount of spending on the NHS and public services as part of the Conservative Party’s campaign promises.
While it doesn’t appear that the UK economy’s growth has taken a significant hit to a gradual increase in growth rates since 2009 without comparing it to the simulated economy, the simulation predicts that the world-wide economic growth felt in other countries has not influenced the UK economy as much as it has elsewhere. Whether this is a direct result of Brexit, or whether this is due to numerous other factors, such as Austerity measures and Conservative Government Policies leading to decreased public spending and increased inflation, or just natural fluxuations in economic practice on a societal scale, is not currently understood.