The Economic Consequences of Brexit

Membership of the European Union has contributed to the economic prosperity of the United Kingdom.Uncertainty about the outcome of the referendum has already started to weaken growth in the UnitedKingdom. A UK exit (Brexit) would be a major negative shock to the UK economy, with economic fallout inthe rest of the OECD, particularly other European countries. In some respects, Brexit would be akin to atax on GDP, imposing a persistent and rising cost on the economy that would not be incurred if the UKremained in the EU. The shock would be transmitted through several channels that would changedepending on the time horizon. In the near term, the UK economy would be hit by tighter financialconditions and weaker confidence and, after formal exit from the European Union, higher trade barriersand an early impact of restrictions on labour mobility. By 2020, GDP would be over 3% smaller thanotherwise (with continued EU membership), equivalent to a cost per household of GBP 2200 (in today’sprices). In the longer term, structural impacts would take hold through the channels of capital, immigrationand lower technical progress. In particular, labour productivity would be held back by a drop in foreigndirect investment and a smaller pool of skills. The extent of foregone GDP would increase over time. By2030, in a central scenario GDP would be over 5% lower than otherwise – with the cost of Brexitequivalent to GBP 3200 per household (in today’s prices). The effects would be larger in a morepessimistic scenario and remain negative even in the optimistic scenario. Brexit would also hold back GDPin other European economies, particularly in the near term resulting from heightened uncertainty wouldcreate about the future of Europe. In contrast, continued UK membership in the European Union andfurther reforms of the Single Market would enhance living standards on both sides of the Channel.

OECD Economic Policy Papers

The Economic Consequences of Brexit

A Taxing Decision