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The UK economy is now 5 per cent smaller than it would have been if the nation had opted to remain within the European Union, as outlined by an evaluation conducted by Goldman Sachs.
A significant downturn in UK goods trade, decreased business investment, and a notable rise in non-EU migrants coming to Britain for studies rather than employment have hampered economic expansion.
Analysts at the American investment bank highlighted that “the UK has notably lagged behind other developed economies since the 2016 EU referendum, experiencing slower growth and higher inflation”. It was estimated that consumer prices had surged by 31 per cent in Britain since 2016. In comparison, the United States and the eurozone saw increases of 27 per cent and 24 per cent, respectively.
Increased trade hurdles have driven up the costs associated with goods exchange, thereby exerting upward pressure on prices, according to Goldman. The bank’s experts stated that their “analysis indicates that reduced EU immigration has likely contributed to labour market tightening, thereby fuelling higher inflation rates in the UK since 2016.
“EU immigrants typically exhibited high levels of participation in the labour market, as many arrived in the UK with the intention to work. Conversely, a significant portion of recent arrivals are students, indicating that immigration might not be as influential in bolstering labour supply as the headline figures suggest.”
Since the EU referendum, the influx of European citizens to Britain has sharply declined. However, this decrease has been offset by a surge in non-EU migration to the UK, leading to a total net migration figure of 745,000 in 2022, a record high. Last month, the Office for National Statistics predicted that net migration would contribute to pushing the UK population to 74 million by 2036.
While the shift in migration patterns has contributed to short-term inflationary pressures, Goldman noted that a larger proportion of migrants now arriving in Britain are highly skilled, which could “yield long-term benefits in terms of enhancing productivity”.
Investment levels have remained “subdued” since 2016, Goldman remarked, owing to “prolonged uncertainty surrounding the ultimate Brexit arrangement”. Nonetheless, the bank’s analysts observed that “with much of this uncertainty now resolved, some of the investment weakness might reverse, aligning with a recent uptick in investment activity”.
Economists have pointed out that Britain’s economic growth rate has markedly slowed since the 2008 global financial crisis due to limited productivity advancements. These have been attributed to dwindling private and public sector investment.