The British economy has underperformed other advanced economies since mid-2016 due to Brexit. The UK has lost close to 2.5% of GDP relative to its pre-referendum trajectory, due largely to weaker investment, according to the Brexit — Withdrawal Symptoms report from Goldman Sachs.
Since the referendum, companies have been busy hiring new workers and capex has been ignored. Goldman says strong employment has masked a misallocation of resources to labour rather than to capital – and it expects that this will ultimately make the economy less efficient.
One major fear is a tight labour market. “The balance between weaker demand for workers and a shorter supply of workers bears the hallmarks of a Brexit-induced labour-market shock,” Goldman says. And all this will only serve to accentuate “the chronic underperformance of UK productivity”.
On the bright side, Goldman says that “in 2020, with Brexit resolved, we do expect a pick-up in activity as uncertainty abates.”
However, the investment bank could well be wrong about that 2020 resolution, of course.