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BUSINESS INVESTMENT, PRODUCTIVITY AND BREXIT

Published online by Cambridge University Press:  20 January 2025

Ahmet Kaya Open the ORCID record for Ahmet Kaya [Opens in a new window] ,
Iana Liadze ,
Hailey Low ,
Patricia Sanchez Juanino  and
Stephen Millard
Ahmet Kaya*
Affiliation:
National Institute of Economic and Social Research, 2 Dean Trench Street, London, SW1P 3HE, UK
Iana Liadze
Affiliation:
National Institute of Economic and Social Research, 2 Dean Trench Street, London, SW1P 3HE, UK
Hailey Low
Affiliation:
National Institute of Economic and Social Research, 2 Dean Trench Street, London, SW1P 3HE, UK
Patricia Sanchez Juanino
Affiliation:
National Institute of Economic and Social Research, 2 Dean Trench Street, London, SW1P 3HE, UK
Stephen Millard
Affiliation:
National Institute of Economic and Social Research, 2 Dean Trench Street, London, SW1P 3HE, UK Durham University Business School, Durham, UK University of Portsmouth, Portsmouth, UK
*
Corresponding author: Ahmet Kaya; Email: [email protected]
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Abstract

The United Kingdom has experienced significantly lower growth rates of business investment and labour productivity following its decision to leave the European Union, although this lacklustre performance was affected by the economic shocks caused by the COVID-19 pandemic and the Russian invasion of Ukraine in addition to Brexit. This article aims to quantify the impact of Brexit on business investment and labour productivity in the United Kingdom using the National Institute of Economic and Social Research’s Global Macroeconometric Model. We model Brexit as a decline in trade with the European Union and associated reduction in terms of trade, a decrease in productivity and a permanent increase in uncertainty. Our estimates suggest that these shocks have led to an approximately 12–13% decline in UK business investment in 2023, which gradually declines to 7–8% by 2035 as businesses adjust to the terms of trade and productivity shocks. This corresponds to a real gross domestic product (GDP) loss of 2–3% (about £850 per capita) in 2023 and 5–6% (about £2,300 per capita) by 2035. Additionally, we find that Brexit has reduced labour productivity by around 2–2.5% as of 2023, with a projected reduction of 5–6% by 2035.

Keywords

Brexitbusiness investmentsEuropean Uniontrade and Cooperation AgreementC50E37F40
Type
Research Article
Information
National Institute Economic Review , First View , pp. 1 - 16
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of National Institute Economic Review

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