UK Prime Minister Boris Johnson wants to “unleash Britain’s potential.” First the economy has to catch back up with the rest of the world.
Research by Bloomberg Economics estimates that the economic cost of Brexit has already hit £130bn (about R2.4trn at current exchange rates), with a further £70bn set to be added by the end of this year. That’s based on the damage caused by the UK untethering from its Group of Seven peers over the past three years.
The UK is finally set to leave the European Union at the end of this month after Johnson’s decisive election victory. But the uncertainty since the 2016 referendum has taken a toll. Business investment in particular has been held back, and annualised economic growth has halved to 1% from 2%.
Dan Hanson, UK economist for Bloomberg Economics, puts the total cost of Brexit by the end of 2020 at a towering £20bn, as uncertainty continues to inhibit companies and consumers. While Johnson’s deal with the EU late last year removed the imminent threat of a no-deal split, he still has to negotiate new trading arrangements. That creates another potential cliff edge at the end of the year.
The government remains upbeat. Ahead of the budget in March - the first major opportunity to spell out the economic plans of the new Conservative-majority government - Chancellor of the Exchequer Sajid Javid has promised a “decade of renewal.” Tax cuts and increased borrowing for investment are all on his agenda.
Despite this, none of the ground lost since 2016 is likely to be made up, according to Hanson.
While growth globally has also cooled in recent years, the analysis by Bloomberg Economics shows the UK has still lagged. As Hanson explains, there is a strong historic correlation between the UK and G-7 countries. But they have been diverging since the vote to leave the EU, with the British economy now 3% smaller than it could have been had the relationship been maintained.
“Looking beyond 2020, we forecast the growth spurt in this year will be a one off - the economy will get a shot in the arm, but the cyclical lift that provides won’t last,” Hanson said. “As the UK comes to terms with its new trading relationship with the EU and grapples with the productivity challenge that has hindered growth since the financial crisis, the annual cost of Brexit is likely to keep increasing.”
-With assistance from Zoe Schneeweiss.