LONDON

Brexit has hit the UK economy harder than many critics feared, according to a new study by the National Bureau of Economic Research (NBER) in the US.

The report, written by five economists, including one from the Bank of England, examines “almost a decade’s worth of data” to assess the long-term impact of the UK’s decision to leave the European Union.

The authors say the Brexit process — which began when the Leave campaign won the June 2016 referendum “by 51.9% to 48.1%” — dragged on for years due to its complexity.

Although the UK formally left the EU in January 2020, a transition period ran until the end of that year, with “negotiations on Northern Ireland stretching into 2023.”

They write that “it was not until 2024 that the Brexit process was close to completion,” forcing them to analyze nearly 10 years of economic data.

Their findings suggest a significant hit to Britain’s economic performance.

The study estimates that “by 2025, the Brexit process had reduced UK GDP by 6% to 8%, investment by 12% to 18%, employment by 3% to 4%, and productivity by 3% to 4%.”

These effects, the economists note, “accumulated gradually over time.”

The report identifies four main channels through which Brexit has weakened the economy. The decision to leave the EU created “a persistent increase in uncertainty, weighing on investment, in particular.”

Firms also faced “lower expected demand for goods and services,” while innovation and IT investment slowed and management resources were redirected towards preparing for Brexit.

Meanwhile, “the more productive, internationally exposed firms were more negatively impacted,” reducing productivity gains between companies.

To assess the impact, the economists highlight that the referendum outcome was widely seen as unexpected — betting markets put the odds of Leave winning at “around 30% in the months before the vote.”

They use this “discrete event” to employ both macro-level and micro-level identification strategies.

At the macro level, the UK’s post-2016 performance is compared with up to 33 similar countries.

The approach, they say, “matches UK performance to these countries in a 10-year pre-referendum control period and then simulates the next 10 years after the referendum to forecast” how Britain would have performed without Brexit.

The study concludes that the economic consequences of leaving the EU have been deeper and more persistent than many anticipated at the time of the vote.