Immigration from EU countries has fallen sharply while non-EU immigration has increased. However, EU migrants have benefited the economy because they work, while the current influx of migrants is primarily made up of students who are not working.
AdvertisingThe UK's exit from the European Union is a costly business, with low growth and high inflation, according to Goldman Sachs.
A recent report by the US investment bank revealed that the UK's real GDP has lagged behind economic growth in comparable countries by around 5% since the referendum.
Admittedly, the report pointed out that not all of the UK's growth shortfalls could be attributed to Brexit, with the UK economy taking a strong hit from the COVID-19 pandemic and the energy crisis resulting from the Russia-Ukraine war.
Even so, the report says the 5% figure attributed to Brexit appears to be in line with other previous studies, using a „doppelgänger” statistical estimation method that looks at the economies of similar countries.
Its findings show that, firstly, compared to other advanced economies, UK goods trade has underperformed by up to 15% since the 2016 referendum when the UK voted to leave the EU.
Second, business investment has been weak since 2016, below the pre-referendum trend, the report said.
Immigration has shown an unexpected rise since 2016
Third, while immigration from the EU has fallen sharply, non-EU immigration has risen significantly, with more people coming to the UK to study rather than looking for work and boosting the labor market.
„Brexit has clearly affected immigration to the UK. In particular, net immigration from the EU rose to 300,000 in the year to 2016Q2 but is now negative,” the report said.
„Much of this decline is due to fewer people coming to the UK for work. This means that total immigration into the UK is now higher than it was before the EU referendum, reflecting more immigration from outside the EU.
„EU migrants have high labor market participation rates because many of them entered the UK specifically to work. In contrast, many recent arrivals are students, meaning that migrants may play a smaller role in increasing the labor supply than the headline numbers suggest.
„Furthermore, the latest ONS forecasts suggest that net migration numbers will recede slightly in the coming years, and the decline could be accelerated by the recently announced increase in the salary range for skilled workers.”
What does the future hold?
Future prospects for post-Brexit Britain look even bleaker. Goldman Sachs believes new trade deals with non-EU countries could improve the UK's prospects, but many post-Brexit deals remain the same as pre-Brexit deals. It describes the free trade agreement with Australia as worth 0.08% to the UK economy.
It also points out that no major trade deals are currently underway. Agreements with the US and India are unclear.
The report concludes: „While we see many areas for positive collaboration, the direction will depend on the plans and priorities of the next government.
„Prime Minister Sunak's comments suggest that major changes are unlikely under a new Conservative government.
„Labour leader Starmer pledged to push for closer ties using the 2025 review of the TCA (Trade and Cooperation Agreement) … but ruled out rejoining the customs union or single market.”