Brexit: Assessing short-and long-term consequences for the UK

Even more than 4 years after the Brexit referendum , it is not clear how the new trade regime between the UK and the EU will look. The difference between no-deal and a free trade agreement , with respect to short-term growth implications for the UK , would probably not be too dramatic. This is because even under a free-trade agreement there would be border checks and disruptions to trade flow s . The long-term implications might be more severe and will ultimately depend on how business investment spending will be affected. A no-deal Brexit , and the introduction of tariffs , could weigh on investment spending in a prolonged manner , in particular f or foreign companies. Using a growth accounting approach, we estimate that trend growth could be lowered by around a full percentage point in a downside scenario. It will take some tim e to fully understand all the consequences of Brexit , as t he adjustment of the UK economy to its new equilibrium will not happen overnight . Moreover, it is conceivable that, should negotiations fail this time, a new attempt will be made after some time has passed and the dust settled. How the UK will fare outside the EU will be also important for the EU itself. This is not just because the UK will remain an important trading partner for the EU. The UK’s future path will also implicitly show the value ( and costs ) of EU membership. The higher the value of that membership is to be found, the lower the appeal of leaving the EU will be and the more attractive EU membership will be .