The UK economy has taken a significant hit since leaving the European Union, according to a report by Goldman Sachs.
The investment bank has determined the UK economy is 5% smaller than it would have been had the country remained within the bloc. Key factors in this reduced growth rate include a sharp decline in goods trade, a slowdown in business investment, and higher inflation.
Consumer prices in the UK have soared by 31% since 2016, outpacing the 27% increase in the US and 24% in the eurozone.
Goldman Sachs attributes rising inflation to higher trade costs following Brexit. It also observes that reduced EU immigration has worsened labor market shortages. Previous EU immigrants often entered the UK specifically for employment, whereas recent arrivals primarily include students with a lower labor force participation rate. Goldman suggests that the influx of highly skilled non-EU migrants could boost long-term productivity.
Investment spending has been noticeably weak since 2016 due to lingering uncertainty around the form of Brexit. With that uncertainty lifted, Goldman Sachs sees potential for an upswing in investment moving forward. However, a long-standing issue persists – the UK’s economic growth has suffered since the 2008 financial crisis due to poor productivity gains, largely a result of declining private and public sector investment.