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The new Prime Minister has claimed that the vote to leave the EU in 2016 has ushered in a decade of low economic growth. In this essay, I take a step back and look at what the evidence is really saying. In short, Brexit is not to blame.
The short version
A decade ago, the British people voted to leave the EU and restore sovereignty to the UK government. Westminster has since regained control over laws and borders, run its own trade policy, and saved tens of billions of pounds in contributions to the EU budget. On this basis, Brexit has been a success.
Indeed, multiple polls show that any support for rejoining the EU crumbles when people are presented with the costs and conditions of membership, and that most still want key decisions to be made by politicians who they can actually vote out.
This democratic choice has also laid the foundations for a stronger economy. Benefits can already be seen in many areas where the government has begun to use the Brexit freedoms.
Examples include agriculture, where subsidies are now better targeted, and animal welfare, with UK bans on live animal exports and industrial sand eel fishing.
The financial services sector was nervous about Brexit. But after seeing the benefits from pro-growth reforms, the City is now campaigning against closer alignment with EU rules.
Outside the Customs Union, the UK has used its independence to secure faster, better trade deals worldwide, and to cut tariffs unilaterally.
Outside the Single Market, the UK has gained greater freedoms to “buy British” and provide state aid, for good or ill, and to reduce VAT.
Looking ahead, there is enormous potential to benefit from smarter regulation of new technologies, including AI. There have already been important Brexit wins in fields such as gene editing – crucial for raising drought-resistant crops.
The savings on contributions to the EU Budget will also only grow.
It is nearly impossible to isolate Brexit’s impact from other factors, such as Covid and relatively high energy costs. But studies claiming that the UK economy has taken a hit of “as much as 8%” fail to do so miserably.
A more balanced view is that Brexit has had little overall impact on the economy, so far. Whether it ultimately leaves the economy weaker or stronger will depend on the choices made by the UK government – which is as it should be.
The longer version…
How we got here
On 23 June 2016 the UK held a referendum on EU membership and voted to leave by a narrow majority of 52% to 48%. Although the referendum was technically “advisory”, the UK government had repeatedly said this was a “once in a generation decision” and that it would “implement what you decide”. The vote therefore began the process commonly known as “Brexit”.
The referendum itself was about sovereignty. Westminster has since regained control over laws and borders, run its own trade policy, and saved tens of billions of pounds in contributions to the EU budget. On this basis, Brexit has been a success.
Nonetheless, this essay is mainly about the economics. The decision to leave the EU was itself a shock. Most analysis of the economic impact of Brexit therefore starts the clock in 2016.
This period was characterised by heightened political and economic uncertainty. Article 50 was not triggered until March 2017, which formally began what was supposed to be a two‑year exit process. However, negotiations between the UK and the EU dragged on, with Theresa May’s government proving unable to secure parliamentary approval for deal.
The 2019 general election eventually gave Boris Johnson a large majority to pass a revised agreement. The UK formally left the political structures of the EU on 31 January 2020. But even this was followed by a transition period where the UK remained part of the EU Single Market and Customs Union, which lasted until the end of that year.
This is important, because a lot of the initial disruption, especially to investment, can be traced to that prolonged period of uncertainty – which has now eased.
More positively, the UK left on relatively favourable terms. In particular, the Trade and Cooperation Agreement (TCA) provided zero‑tariff, zero‑quota trade in goods that meet rules of origin, alongside frameworks for services, digital trade, transport, energy, fisheries, and social security coordination.
This is important, too. The upshot is that much less has actually changed than many people anticipated, feared, or hoped, in the wake of the vote to leave.
The immediate market reaction
The impact was seen first in the financial markets, where sterling and UK equity prices fell sharply in the wake of the referendum results. This was consistent with fears that Brexit would damage the UK economy in the long run and even that the uncertainty created by voting to leave would be enough to trigger an immediate recession. These fears had been fuelled by some gloomy analysis published in advance of the referendum by the UK government.
Nonetheless, these market moves need to be seen in context. Sterling had already started to weaken in 2015 as a consensus emerged that the currency was overvalued. This was reflected in large current account deficits and below-target inflation, two problems which the fall in the pound at least helped to correct.
Moreover, in trade-weighted terms the fall in the pound between 2015 and 2016 did little more than reverse the rise since 2012. More than half the peak-to-trough fall in the value of the pound against the dollar over this period took place before the referendum result was known.
Sterling has remained weak. But UK equity markets recovered quickly as the Bank of England cut interest rates, rather than raised them, and as the feared “immediate recession” failed to materialise.
But beyond that initial shock, there is now a bewildering range of estimates for the harm that Brexit is assumed to have done to the UK economy, or the benefits of rejoining the EU. These studies can be divided into three types.
1. “Crystal ball gazing”
Many studies were undertaken around the time of the referendum in 2016. These attempted to guess what the impact of Brexit might be using a wide range of models and assumptions, before the shape of any future agreement with the EU was even known.
The highest profile of these was the working assumption made by the OBR, which was that Brexit would reduce long-run productivity (specifically, GDP per head) by 4% relative to remaining in the EU. However, this 4% figure was simply a crude average of the results of 13 external studies. Even then, 9 of the 13 studies suggested the impact would be less than 4%.
The OBR also assumed that both exports and imports would be around 15% lower in the long run than if the UK had remained in the EU. This figure was also based on the average estimate of a number of external studies that looked at the impact of leaving the EU on the volume of UK-EU trade.
Crucially, the OBR’s 15% figure covered total trade in goods and services with the entire world, not just goods trade with the EU. A shock of this magnitude to the UK’s global trade had always looked implausibly large, and it has indeed failed to materialise. In particular, the UK’s trade intensity (or “openness”) has continued to track that of similar countries, such as France.
2. “Top down” (or doppelgänger) models
A number of more recent studies have attempted to look back at the impact of Brexit by comparing the performance of the UK economy since 2016 to that of other countries and then attributing any divergence solely to Brexit.
The highest profile example here is a paper published by the NBER last year, which suggested that GDP per head was 8% lower than otherwise as a result of Brexit.
The NBER paper used data for 33 advanced economies (the EU27, the US, Canada, Japan, Iceland, Norway, and Switzerland) from 2006 to 2025, applying five different approaches. Four used data from all 33 economies, taking a simple unweighted average, a GDP weighted average, a gravity weighted average (GDP divided by distance), and a trade weighted average.
The fifth approach used a formal “synthetic control model”. This is the most sophisticated version of a “doppelgänger”, where a computer algorithm is left to pick the weighted average of a subset of countries whose economic performance happened to match that of the UK most closely before 2016
However, this approach simply cannot separate out the impact of Brexit from other reasons why some economies have grown more quickly (or slowly) than the UK since 2016.
These alternative explanations include the impact of the Covid pandemic and the energy crisis, and many others. For example, the US has benefited not just from relatively low energy but also from a large fiscal stimulus and the AI boom.
Care should be taken too when comparing the UK’s economic performance since 2016 to that of countries hit hard by the euro area debt crisis of the early 2010s. The numbers for Italy, Spain and Greece in particular have been flattered by catch-up growth. The 8% figure is implausibly large if you compare the actual performance of the UK economy to better matches such as France or Germany.
3. Bottom-up studies
These studies have tried to calculate the impact of Brexit from the bottom up, using industry or sector level data. In principle, these studies might be better able to separate the impact of Brexit from other factors. But they are still flawed.
For example, the NBER paper also suggested that Brexit has reduced UK per capita GDP by 6% (rather than 8%) using an alternative approach based on micro-modelling. This drew on firm-level survey data from the Bank of England’s Decision Maker Panel (DMP) survey. Any divergence in the performance of firms based on their pre-referendum exposure to the EU was then assumed to be due solely to Brexit.
The DMP is a relatively large survey, but the respondents are not necessarily representative of the UK economy as a whole. More importantly, divergences in the performance of individual firms depending on their exposure to the EU may also be picking up the relative weakness of major European economies over this period (especially Germany), or other factors such as the impact of the UK’s relatively high energy costs on the competitiveness of goods which are mainly exported to the EU.
Finally, while the prospect of an increase in trade frictions with the EU will clearly have had some negative effects, these should prove to be (mostly) temporary as Brexit uncertainty fades and firms adjust to the new trading arrangements. Indeed, the DMP itself suggests that Brexit has dropped well down the list of concerns for most firms.
A better approach
Comparing the performance of just one country (the UK) to an average of many others is bound to gloss over all the alternative explanations for the differences. A more balanced view would look too at the performance of the UK economy compared to individual countries – especially those that might have been expected to perform similarly in the circumstances of the last ten years (not just in the ten before that).
Supporters of the doppelgänger approach, and especially the use of synthetic control models, argue that these techniques minimise the problem of “cherry-picking” countries to fit a particular narrative. They are also widely used in other contexts.
But there is a trade-off here. There must be some role for judgement when it is obvious that other factors are at play. There may be a greater risk that leaning too much on computer models, or averages of as many as 33 very diverse economies, will stifle any intellectual curiosity.
Here then are some stylised facts.
- On investment, the UK lagged behind other comparable countries in the first few years after 2016, but then began to catch up again as Brexit uncertainty eased. More recently, UK business investment has been relatively strong and the UK remains a top destination for FDI.
- On trade, the UK has underperformed on trade in goods with the EU, but also on trade in goods with the rest of the world beyond the EU. This suggests that the additional frictions in UK-EU trade have played a relatively small part.
- Moreover, the UK has outperformed on trade in services, meaning that overall trade has held up much better than expected.
- On inflation, any Brexit effect has been swamped by other factors. This is perhaps clearest if you look at food prices, which have risen slightly more in the EU than in the UK.
- On total GDP, the UK economy has performed relatively well compared to other G7 economies in Europe. This largely reflects the initial surge in net immigration to the UK in the years after Brexit, confounding forecasts that migration would collapse.
- On per capita GDP, the UK economy has performed less well, but has still continued to track between France and Germany, while keeping pace with Canada. As noted earlier, Italy's faster growth since 2016 is partly just catch up after the big hit from the euro debt crisis of the early 2010s. It has also been flattered by a huge fiscal stimulus.
Conclusions
Many people want to believe that leaving the EU has been a disaster for the UK and are happy to blame Brexit for all the UK’s problems. This involve exaggerating the costs while downplaying the benefits, both now and in the future.
It is more helpful to compare the performance of the UK to individual countries with similar characteristics, such as France, Germany and Canada.
This shows that Brexit has largely been a non-event in macroeconomic terms. Indeed, the real story is how little impact that leaving the EU has had. This makes sense, because relatively little has actually changed.
The consensus also assumes that the costs of Brexit will only grow over time. In fact, there is already plenty of evidence that the headwinds are fading.
In particular, the initial uncertainty created by the vote to leave and the prolonged negotiations thereafter was a drag on business investment. But this drag is now lifting as Brexit uncertainty has eased.
Similarly, firms are adjusting to the new trading arrangements and found alternatives to EU workers. The OBR’s assumption that global exports and imports would be 15% lower than otherwise simply has not materialised. Labour shortages have eased too.
There is no serious discussion of the potential benefits of Brexit. At most the benefits of new trade deals are dismissed. But there is rarely even any acknowledgement of the scope for regulatory improvements – as already seen in sectors as diverse as financial services, life sciences, and animal welfare. And there is huge scope to do better in growth areas, such as AI.
Last but not least, the savings on budget contributions will also only get bigger as the EU expands.
In summary, Brexit has not turned out to be the car crash that many feared. Some still describe it as a slow puncture for the British economy. In reality, it may turn out to be little more than a bump in the road. And if that road takes us further away from the emerging disaster that is the EU, then all the better!
