Abstract:

We analyze the effects of Brexit on the UK economy. The most important economic consequence of Brexit would likely be reduced trade with EU countries. We consider an optimistic scenario with relatively small increases in trade barriers between the UK and the EU and a pessimistic scenario with larger rises. In the optimistic scenario Brexit reduces UK income per capita by 1.1% and in the pessimistic scenario income per capita falls by 3.1%. The effect of Brexit on FDI and migration would impose additional costs on the UK and following Brexit the UK would not benefit from future EU free trade agreements such as the Transatlantic Trade and Investment Partnership currently being negotiated with the United States.