Whenever Remainers post predictions of our projected economy post Brexit Leavers dismiss them as 'opinion', 'experts disagree' and 'we can't possibly know what is going to happen'. Well, it should be difficult to dismiss this analysis of what has already happened. It comes from a very recently published report 'Article 50 - 2 Years On'
The initial impact came through the exchange rate. After the votes were counted, the value of sterling quickly declined and it has settled around 10% below its pre referendum value. A fall in the pound increases the costs of UK imports and in the year after the vote consumer prices rose rapidly. Analysis by researchers at the Centre for Economic Performance estimates that the Brexit vote increased consumer price inflation by 1.7 percentage points in the year following the referendum.
Rising prices put pressure on household budgets and, by June 2017, the Leave vote was costing the average UK household £404 per year. Analysis of the sources of slower GDP growth finds that reduced consumer demand contributed to lower output growth from late 2016 onwards
By contrast, business investment initially showed no evidence of a Brexit effect. However, this changed in 2018 when business investment declined for four consecutive quarters and recorded its lowest annual growth rate since the financial crisis a decade earlier. Investment today increases productivity tomorrow, so declining investment is a worrying sign for future growth prospects.
The one bright spot for the UK economy has come from unemployment, or rather its absence. The labour market has continued to create jobs and unemployment is at its lowest level for over 40 years. Of course, the combination of increasing employment and slow output growth implies that productivity growth has been disappointing. And without productivity growth living standards will not rise. But this problem predates Brexit and is not unique to the UK
Trade and foreign investment flows have also started to respond to the referendum. The decline in sterling makes UK exports cheaper, but, so far, there is no evidence this has boosted exports. On the contrary, research shows that firms have become less willing to export because they fear future increases in trade costs. A team at Cambridge University has found that, following the referendum, UK firms were less likely to start exporting to the EU and that existing exporters were more likely to stop exporting. Importantly, they show that the impact is greater for firms that would face higher tariffs in the event of a no deal Brexit.
Analysis by the UK Trade Policy Observatory finds that the Brexit vote led to a decline in new foreign direct investment in the UK. Looking at flows in the opposite direction, work by the Centre for Economic Performance shows that the Leave vote has led to a 12% increase in new investment projects by UK firms in the EU, but has not affected UK investment outside of the EU. Together these studies suggest that Brexit is making the UK a less attractive place to do business.
ukandeu.ac.uk/wp-content/uploads/2019/03/Article-50-two-years-on.pdf
The report contains analysis of many aspects of Brexit and its effects, both what has happened and what is possible in the future. Worth a read