Goldman Sachs estimates that Britain’s economy is about 6% below the level it would have reached had the U.K. stayed in the European Union, according to a note published on the ten-year anniversary of the 2016 referendum. That shortfall has increased from the 5% gap the bank reported two years ago.
The bank reached its conclusion using a method it describes as a "Doppelgänger" analysis - a statistical approach that replicates the U.K. economy by combining weighted performance from other peer countries to form a synthetic comparator. Depending on which peer group is employed in the construction, Goldman’s models produce an estimated output deficit that ranges from 4% to 8%.
Goldman reports that robustness checks point to underperformance of at least 4% even under conservative assumptions. The estimate aligns with recent academic and empirical work, the bank notes: model-based studies have averaged a 5% drag on output, while newer empirical research has indicated a hit in the 6-8% range.
The note identifies three principal channels through which Brexit has weighed on output. First, goods trade volumes are estimated to be 10-15% below the trajectory they would likely have followed if they had grown in line with other G7 economies. Services trade has also been affected, though it initially held up better than goods.
Second, Goldman argues that the lower trade intensity has probably reduced productivity. The bank quantifies this productivity-related hit to GDP at roughly 2-4% of output.
Third, business investment stalled after the referendum and has run about 10% below comparable peer economies. Survey evidence cited by Goldman consistently points to Brexit-related uncertainty as a factor in weaker investment, which the bank estimates has subtracted just over 2% from output.
Migration patterns represent an additional, material channel. Net EU migration shifted from an annual inflow of more than 300,000 people before the vote to an outflow afterward. Although non-EU immigration rose after the pandemic, Goldman says the overall shift has contributed to labour shortages in sectors that historically relied on EU workers.
Despite the magnitude of the cumulative shortfall, Goldman highlights two reasons for a cautiously less pessimistic outlook. First, several studies suggest the growth drag has been front-loaded rather than persistent; second, the goods trade shortfall has shown signs of stabilising. The bank also notes a change in public sentiment, with 52% of Britons now supporting EU membership, and it points to government efforts to pursue closer ties with Brussels.
On growth projections, Goldman expects U.K. trend growth to rise from the 1.2% average recorded since 2016 to around 1.5% over the coming years. The bank says trend growth could reach roughly 1.7% if there is a substantive reset in EU-U.K. relations - for example, alignment with the single market or a customs union.
Implications for markets and economic sectors
- Trade-dependent industries have seen an enduring hit from lower goods and services volumes.
- Investment-sensitive sectors face headwinds given persistent weakness in business capital spending.
- Labour-intensive areas that historically drew on EU workers have experienced tighter labour markets.