The UK and EU have reached a trade agreement, avoiding the specter of a no-deal Brexit and ending years of extreme economic uncertainty on both sides. But economists warn that the costs of Brexit are still large, and will hamper the UK economy in particular for years to come.
“The hangover of Brexit starts now,” says Nicholas Bloom, an economist at Stanford who has studied the economic effects of the 2016 referendum.
Economists at Citigroup estimate that the UK economy will produce 2% to 2.5% less in 2021 than it would have with an extension of ties with the EU.
But in the short term there also are benefits for both the EU and the UK.
“On the positive, it removes the uncertainty,” says Bloom. His research over the past four years has found that the uncertainty around Brexit has caused UK firms to delay investment and hiring. It also has sucked up managers’ time and attention: the average UK CEO spent about a week and a half annually on Brexit planning.
In 2021, the UK will benefit from a “certainty dividend,” according to Bloom—though it may not be large enough to account for the additional costs that come with leaving the EU.
“Britain has punched itself in the face”
In the long-run, economists expect the UK to be richer than it would have been under a “hard Brexit”—in which the UK and E