The Not-So-High Costs of Brexit
Beyond a weaker pound and lower UK interest rates, the British vote to exit the EU has not had a lasting economic impact. In fact, thanks to the economic transformation that the UK has undergone over the last 20 years – in part, driven by the country's EU membership – the economy may well be able to dodge the Brexit bullet.
BRUSSELS – The United Kingdom’s vote to “Brexit” the European Union is on course to become the year’s biggest non-event. Beyond a weaker pound and lower UK interest rates, the referendum has not had much of a lasting impact. Financial markets wobbled for a few weeks after the referendum, but have since recovered. Consumer spending remains unmoved. More surprising, investment has remained consistent, despite uncertainty about Britain’s future trade relations with the EU. Have the costs of Brexit been overblown?
Not exactly. In fact, the UK may well end up losing the predicted 2-3% of GDP from Brexit. But it is the exit from the single market, not the initial vote to leave, that will bring those losses, and that may happen over a long period. If the exit turns out to be a ten-year process, the losses would be borne gradually over that period, costing the UK about 0.2-0.3% of GDP per year, on average.
This could be very good news for the UK. With a weaker currency, the country will benefit from an increase in export competitiveness that could offset those incremental losses and the transient investment weakness that is likely to arise.
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