'Doppelgänger UK' shows Britain's economy is 2.3% smaller because of Brexit

Press quote (Yahoo Finance)
28 January 2019

Britain voted to leave the European Union over two years ago and on 29 March this year, it will sever ties for good. While Brexit hasn’t technically happened, it has caused the economy to be 2.3% smaller than if Brits had voted to remain in the EU.

That’s according to the major thinktank Centre for European Reform’s (CER) calculation of the cost of Brexit by the third quarter of 2018. To obtain the findings, the CER used a “doppelgänger UK” — “a group of countries whose economic characteristics match Britain’s.”

CER says it used a computer program of a group of 22 countries with advanced economies. Those countries included US (whose growth rate makes up 50% of that of the UK doppelgänger), Germany (28%), Luxembourg (11%), Iceland (10%) and Greece (2%). Those 22 countries are also labelled by the International Monetary Fund (IMF) as fully industrialised from 1995, “to remove any countries that are experiencing faster rates of catch-up growth,” said CER.

It looked at quarterly real GDP and other economic indicators, going back to the first quarter of 2009.

“The structure of each country’s economy — and their growth rates — are different to those of the UK. But in combination, they closely match the UK’s economic performance before the referendum,” said the CER.

It added that those countries did not hold a EU referendum in 2016 and coupled with its similar characteristics by comparing those countries’ economic performances to Britain’s, it was able to assess the cost of Brexit.

 The cost of Brexit to Q3 2018

The findings also showed that “the knock-on hit to the public finances is £17bn ($22.4bn) per annum — or £320m a week.” More calculations can be found here.

“One way to sanity-check our estimate is to compare the UK’s growth to that of other comparable countries since the referendum. The UK has grown by 3.7% over that period. Compare that to the average of the 22 most advanced economies: 5.6%,” said the CER. “That amounts to a 1.9% gap, not far from our estimate of the cost of Brexit.”

How business investment and jobs growth has been hit by Brexit

The CER’s report falls in line with what data and the world’s biggest leaders have been saying for the last two years. While Brexit hasn’t happened yet, many huge companies have put their business investment and job growth on pause until Brexit happens.