Four years after the June 2016 referendum, the U.K. finally struck a deal to exit the European Union (EU). Despite all the attention, controversy, and volatility that Brexit has brought, we don’t expect any meaningful effects on near-term economic activity. Firms are generally well prepared and the government has already rolled over most non-EU trade deals. And while there may be some temporary frictions at the border, they pale in comparison to the near-term uncertainty around the economic effects of COVID-19 and the speed of the vaccination distribution.
Productivity is key
In the long term, Brexit certainly raises many questions, but most areas of the economy will likely be largely unaffected. Labour supply is one example. While the U.K. will now control its own border, it is far from clear whether Brexit will lower net migration. Since the referendum, net inward migration has been mostly unchanged – lower EU migration has been offset by higher non-EU migration – and we see no strong reason for that to change going forward.
One key uncertainty is productivity. It is possible the new trading relationship lowers productivity growth at the margin, with more barriers to trade diluting the benefits from specialising in areas
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