Carrying out Brexit will not improve the UK’s struggling economy but will usher in years more uncertainty about Britain’s trading relationships, a new report has said.
The hard Brexit that Prime Minister Boris Johnson is proposing will also limit the size of the UK market and raise trade costs, making it a less attractive place for investment, according to at the London School of Economics (LSE).
The report says the UK economy has suffered a “lost decade”. Productivity – output per hour worked – is 24 per cent below its pre-financial crisis trend and real wages are yet to return to 2008 levels.
A major factor has been low levels of investment, the report says, which was suppressed in part by austerity and more recently by Brexit uncertainty.
Johnson has said that leaving the European Union with a Brexit deal would boost the economy. Professional services firm KPMG said in September that a Brexit deal would mean “investment recovers some ground”.
However, John Van Reenen, professor of economics at LSE and an author of the report, said: “It is a mistake to believe that ‘getting Brexit done’ will improve things.
“First, there will be continued uncertainty due to years of negotiation over what form the UK’s future trading relationship with Europe will actually look like. Second, a hard Brexit is certainly bad for the economy compared with remaining in the EU.
“The UK will be a relatively smaller market with higher trade costs with our closest neighbours, so a less attractive place for investment.”
To address Britain’s “abysmal” performance on productivity and “pitiful” wage growth, more public and private investment is required, the LSE report said today.
All the major parties have promised to increase government spending in their manifestos ahead of the 12 December General Election, with Labour’s radical, but much-criticised, plans promising by far the most.
Van Reenen said: “It is welcome that the main parties are promising increases in spending to finance public investment, so long as such investments are based on solid evidence rather than political gimmicks and ministerial whims.”