David McNamara: From Brexit to a possible ‘Breturn’
Brexit has reduced UK GDP by between 6%-8%, lowered investment by 12%-18%, and cut employment by 3%-4%.
2026 marks the 10-year anniversary of the Brexit referendum in the UK. Yet almost a decade on, the debate is receiving renewed focus given the current geopolitical threats to the broader European economy.
In 2016, the UK was the fifth largest economy in the world, roughly about 85% the size of Germany’s. It is now the sixth, and about 80% the size of a recently stagnant German economy. Indeed, new research provides fresh evidence of the damage the Brexit vote has caused the UK economy.
A paper published in the National Bureau of Economic Research (NBER) estimates that Brexit has reduced UK GDP by between 6%-8%, lowered investment by 12%-18%, cut employment by 3%-4% and dampened productivity by 3%-4%. This exceeds predictions made at the time of the referendum, when economists estimated a leave vote could lower GDP by 4%-6%.
Brexit has particularly impacted sterling. In the decade up to the referendum result, EUR/GBP averaged around 80p but frequently traded below that threshold. In the 10 years since, it has weakened, averaging close to 87p.
The depreciation of the pound has not been enough to offset newly erected trade barriers. Goods exports are roughly 15% below their pre-2020 trend.
True, services exports have expanded at a healthy pace since the Brexit deal was announced. However, another study from the London School of Economics estimates that they are roughly 4%-6% lower because of Brexit, as the UK’s access to the single market has not been offset by increased market share outside of the EU.
Of course, the UK economy still has many strengths. London remains the second-largest financial sector in the world after New York, and its share of lucrative derivative and forex trading has increased in recent years. The fiscal deficit is lower than most G7 peers, including the US and France.
Furthermore, the UK has consistently ranked as one of the fastest adopters of AI in the world. However, the main drag on the economy since the Global Financial Crisis has been weak productivity growth, exacerbated by Brexit.
The Labour government came to power with a promise to boost growth, yet it has failed to outline a coherent economic plan to lift productivity.
Meanwhile the “reset” in relations between the EU and UK has so far yielded only marginal results. The Government’s own calculations project that the policies announced to date may add just 0.3% to UK GDP by 2040.
A bolder economic strategy could place a new relationship with the EU at its centre. In this regard, PM Starmer’s apparent openness to “closer alignment” with the EU’s single market is a positive step, ahead of the first five-year review of the Trade and Co-operation Agreement, expected this year.
Greater exposure for UK firms to EU markets could support both growth and productivity. It would also likely provide a boost for sterling — although, a “Breturn” dividend still seems some way off yet.
- David McNamara is Chief Economist with AIB
