How Brexit reshaped UK GDP, investment, and productivity
What has been the total economic cost of Brexit on the UK economy across GDP, investment, employment, and productivity, and through what channels did these effects operate? This is the question Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka, and Gregory Thwaites are answering in this paper.
The authors use two complementary identification strategies, both exploiting the fact that the June 2016 Brexit vote was largely unexpected (betting markets put the probability of “Leave” at only 30%).
- Macro approach: The UK’s post-2016 economic performance is compared against a weighted average of up to 33 comparable countries (EU-27, US, Canada, Japan, Norway, Iceland, Switzerland) over 2006–2025. To avoid dependence on any single method, five weighting schemes are used in parallel: synthetic control, GDP-weighted, gravity-weighted, trade-weighted, and unweighted average. The synthetic control assigns greatest weight to the US (61.4%), Estonia (10.9%) and Greece (9.5%) as the closest UK comparators.
- Micro approach: Using the Decision Maker Panel (DMP), a monthly survey of over 2,000 UK firms set up specifically to study Brexit, the authors run difference-in-differences regressions at firm level. The key identifying variation is firms’ pre-referendum exposure to the EU, measured as the average of six metrics: EU export share, EU import share, EU migrant labor share, EU regulatory exposure, share of EU-national directors, and EU ownership. These are matched with firm accounts data from Bureau van Dijk FAME for investment, employment, and TFP outcomes, with controls for Covid-19 impact.
Findings
Effects accumulated gradually over nearly a decade rather than arriving as a sharp immediate shock. The macro estimates are larger than the micro estimates, likely because the micro approach misses general equilibrium spillovers to firms with no direct EU exposure.
Channels identified:
- Uncertainty was the dominant driver of lower investment and TFP, with Brexit remaining a top-3 source of uncertainty for 40–55% of firms during 2018–2021.
- Lower expected demand was more important than uncertainty in driving employment falls, partly via reduced EU migrant labor supply.
- Diverted management time: nearly 10% of CFOs spent 6+ hours per week on Brexit planning, which correlates significantly with lower TFP growth.
- Stock-building ahead of exit raised input costs and temporarily depressed measured productivity.
- Trade disintegration (through the Trade and Cooperation Agreement) is expected to become the dominant long-run productivity channel over time.
The Economic Impact of Brexit
Authors: Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka, Gregory Thwaites
From: Stanford University, Bank of England, King’s College London, Deutsche Bundesbank, University of Nottingham
Brexit’s trade damage and the limits of a customs union
How much of the UK-EU trade losses stem from leaving the customs union versus leaving the single market? That is the question that John Springford and Anton Spisak analyze in this paper. The authors use a structural gravity model to compare UK-EU trade against intra-EU trade (rather than the simpler UK-EU vs. UK-rest-of-world comparison), the paper finds substantial Brexit-induced trade losses across the board:
- Total UK imports from EU: –16%
- Total UK exports to EU: –12%
- Goods imports from EU: –14%; goods exports to EU: –16%
- Services imports from EU: –19%; services exports to EU: –7%
- Overall, Brexit reduced UK-wide exports by 5% and imports by 8%
Single market vs. customs union
The overwhelming majority of damage was caused from leaving the single market and not from leaving the customs union:
- Leaving the customs union accounts for only 1% of import losses and 2–4% of export losses across all goods.
- A customs union would recover only 7% of import losses and 25% of export losses.
- The remaining damage such as regulatory divergence, certification barriers, new services restrictions, can only be recovered by re-entering the single market.
Sectoral highlights
- Biggest export losers: agrifood (–29%), travel (–39%), financial services (–27%), chemicals & pharma (–21%)
- Notable exception: “other business services” (law, accountancy, research) grew +9% vs. counterfactual, showing UK strengths independent of EU membership
- Machinery imports are the one sector where the customs union effect is significant (half of the –26% import loss), due to heavy reliance on third-country inputs.
Policy implications
The paper explicitly evaluates three policy scenarios:
- Current UK-EU “reset” (SPS agreement, ETS linking, youth mobility): worthwhile but covers only 10–18% of goods trade, leaving most losses unaddressed.
- Customs union: modest gains concentrated in a few sectors, while requiring the UK to surrender independent trade policy, including in the context of current geopolitical trade pressures with the US and China.
- Single market re-entry: would recover the vast majority of losses but requires accepting free movement, budget contributions, and rule-taking.
The cost of Brexit, ten years on: The impact of leaving the customs union and single market on UK trade
Authors: John Springford, Anton Spisak
From: Centre for European Reform
