The UK’s exit from the European Union was finally completed on January 1, nearly five years after the Brexit referendum of 2016. To gauge expert sentiment on the likely long-term effects of the split on both the UK economy and the aggregate economy of the remaining 27 EU members, Chicago Booth’s Initiative on Global Markets invited both its European and US economic experts panels to express their views.
Statement A: The UK economy is likely to be at least several percentage points smaller in 2030 than it would have been if the country had remained in the European Union.
Responses weighted by each panelist’s confidence
A strong majority of the panelists agrees that the UK economy is likely to be at least several percentage points smaller in 2030 than it otherwise would have been. Weighted by each expert’s confidence in their response, 86 percent of panelists across both groups either agreed or strongly agreed with the statement, while 2 percent disagreed.
More nuances in the experts’ views come through in the short comments that they are able to include when they participate in the survey. Among those who strongly agree, Thierry Mayer of Sciences-Po notes, “This is one of the topics where quantified evidence has accumulated over the recent years, pointing to large welfare losses.” Richard Portes of London Business School says, “There are many studies, both official sector (e.g. Office for Budget Responsibility) and academic (e.g. the Centre for Economic Performance of the London School of Economics, LSE). Consensus range is 4 percent to 6 percent.”
Several panelists refer to the channels by which a negative impact is likely to occur. John Van Reenen of the London School of Economics and MIT states, “All serious Brexit analysis shows a significant hit to the UK because of higher trade costs with its nearest neighbor.” Peter Neary of Oxford explains, “Leaving the single market and customs unions imposes non-tariff trade barriers that will impact negatively on trade volumes.”
Daniel Sturm of the London School of Economics comments: “There are many channels, but more border frictions, less trade, and therefore less growth is the most direct one.” Christopher Pissarides, also of the London School of Economics, notes, “Because of trade barriers and much less collaboration in research and trade agreements with third parties.” Christian Leuz of Chicago Booth adds, “For UK, multiple channels at play: trade, migration and human capital, and foreign direct investment.”
Some panelists point to effects that have already happened. Judith Chevalier of Yale mentions: “Effects on investment and productivity have already been measurable.” John Vickers of Oxford concurs: “Substantial negative effects on investment and productivity already since the referendum.” And Nicholas Bloom of Stanford says, “Brexit has reduced UK trade in services and migration. Both were driving growth and now both have been reduced.”
A number of panelists provided links to analyses of Brexit effects, including official reports from the Bank of England, the Government of the United Kingdom, and the Office for Budget Responsibility, as well as independent research by some of the panelists themselves—Nicholas Bloom and colleagues on the impact of Brexit on UK firms; Peter Neary and colleagues on trade elasticities and geographical distance in the context of Brexit; and John Van Reenen and colleagues on the costs of Brexit compared with COVID-19, and the consequences for UK trade and living standards.
Among the panelists who say they are uncertain, several mention the role of future UK policy choices in determining the overall growth outcome. For example, Jose Scheinkman of Columbia observes: “While impact is most likely negative, magnitude is still very uncertain and will depend on UK’s future policy choices.”
Jordi Galí of Barcelona Graduate School of Economics adds, “It will depend on the quality (in the sense of growth-oriented) policies it undertakes from now.” Aaron Edlin of the University of California at Berkeley says, “We don’t know yet what trade agreements will replace it.” And Jan Pieter Krahnen of Goethe University Frankfurt explains, “It all depends on the extent to which the UK will pursue a beggar-thy-neighbor policy, basically free-riding or arbitraging on the EU.”
Daron Acemoglu of MIT, who agrees with the statement, is pessimistic about the likely policy choices: “That’s my median expectation. Not because of direct effect of less trade but because of worse policies that will result from Brexit politics.” But Robert Hall of Stanford, who says he is uncertain, is one of several panelists doubtful about how far forward we can look: “This is an incredibly complicated issue with forces going in both directions. Pretense to expertise would be misplaced.”
Statement B: The aggregate economy of the 27 countries still in the EU is likely to be at least several percentage points smaller in 2030 than if the UK had not left.
Responses weighted by each panelist’s confidence
Views are more divided about Brexit’s potential impact on the aggregate EU-27 economy by the end of the decade. Nearly a quarter of respondents agree that the EU-27 economy will be at least several percentage points smaller in 2030 than it otherwise would have been. But more than a third say they are uncertain, while 41 percent don’t expect the impact to be that strongly negative.
Among those who agree or strongly agree, there are concerns about the impact of the loss of the UK’s voice in EU policy-making. Nicholas Bloom argues, “The UK was a free market voice in the EU before Brexit. Without the UK, the EU will be more protectionist.” Lubos Pastor of Chicago Booth shares this view: “After Brexit, EU will miss Britain’s strong voice favoring market solutions and economic efficiency.” And Jan Pieter Krahnen says, “UK’s EU membership produced positive externalities, concerning goods and services, but also with regard to the broader policy decisions taken.”
Of the panelists who say they are uncertain, Kjetil Storesletten of the University of Oslo comments: “EU will suffer from Brexit although less than the UK. Reason: EU is much larger than the UK.” Daniel Sturm says, “Less trade with the UK is not enough of a negative shock for the EU and may be compensated by firms relocating from the UK to the EU.” And Richard Thaler of Chicago Booth asks: “How much of the London financial sector moves to the continent?”
Among those who disagree, several mention the different sizes of the UK and EU economies. Franklin Allen of Imperial College London notes, “UK not a very large part of the total EU so difficult to believe there will be that large an effect.” Patrick Honohan of Trinity College Dublin agrees: “Some areas will be affected, but aggregate impact likely to be less than ‘several percentage points.’” And Maurice Obstfeld of the University of California at Berkeley says, “The EU27 will suffer far less than the UK . . . a much smaller proportion of their foreign trade is at stake.”
Others who disagree note nevertheless that some parts of the EU might be hit harder than others. Beata Javorcik of Oxford says, “The impact on EU countries (other than Ireland) will be much smaller than the impact on the UK.” John Van Reenen adds, “EU needs UK less than UK needs EU. There is bigger hit to some countries (e.g. Ireland), but not so much in aggregate.” And Peter Neary concludes: “Some countries will be negatively affected (e.g. Ireland, Netherlands, Denmark), but larger and more Eastern ones are unlikely to suffer much.”
All comments made by the experts are in the full survey results.