The United Kingdom's vote to leave the European Union has stripped a whopping 440 million pounds ($584 million) per week from the country's public finances, according to new research from the Centre for European Reform (CER). (See also: Earnings Surge Alone Is Not Enough: Goldman Sachs.)
As a result of Brexit, the U.K. economy is now 2.1% smaller as of the first quarter of 2018 than it would have been if it stayed in the EU two years ago, according to the report. The study compared the U.K.'s growth to a weighted basket of 36 comparable economies.
The major drag on U.K. growth has been a big drop off in tax revenues, slashing them by 23 billion pounds per year. Prime Minister Theresa May had indicated that she plans to boost Britain's National Health Service (NHS) funding through a "Brexit dividend," when the country seizes to pay into the EU's budget, yet the study from the London-based research firm dubs any such benefit as "a myth."
Higher Costs for Brexit
"The vote is costing the Treasury £440 million a week, far more than the UK ever contributed to the EU budget. Two years on from the referendum, we now know that the Brexit vote has seriously damaged the economy," wrote the author of the report and the deputy director of the pro-EU CER, John Springford.
Independent statistics watchdog the Office for Budget Responsibility (OBR) has echoed the bearish sentiment, forecasting Brexit to lift the U.K.'s deficit and debt, leaving the government pressured to increase taxes, up its spending cuts, or impose a mixture of the two. The OBR attributes estimates for declining U.K. revenues to it becoming a more isolated country, less open to trade, investment and migration than it was as part of the EU.
While businesses prepare for Brexit to come into law, shifting supply chains and relocating operations, uncertainty may also be weighing on investment. While the global economy has enjoyed a period of broad expansion, the U.K.'s sliver of 0.1% growth in Q1 ranked it behind politically distraught Italy and as the slowest growing in the G-7.
The warnings have bigger implications for the U.S. economy as President Donald Trump refuses to let up on his protectionist trade rhetoric. Many economists view a potential global trade war as dragging the U.S. into a recession. In a recent note, Bank of America Merrill Lynch warned that a drop off threatens to shock business and consumer confidence and disrupt supply chains in a period of record high sentiment and unemployment at a generational low. (See also: Trade Uncertainty Already Hurting US Companies.)