Brexit prep has cut productivity of UK business, says Bank of England
The Brexit process has cut the productivity of UK companies by between two and five per cent, research by the Bank of England has found.
Much of this drop since the vote to leave the European Union in 2016 is due to falls in businesses’ productivity as managers dedicate several hours per week to Brexit planning, researchers said.
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“But we also find evidence for a smaller negative between-firm effect too as more productive internationally exposed firms have shrunk relative to less productive domestic firms,” they added.
The anticipation of Brexit has also “gradually reduced” investment by 11 per cent since the referendum, with the vote generating “a large, broad and long-lasting increase in uncertainty.”
This fall investment was gradual, taking three years to materialise, researchers said. This slow fall contrasted with predictions that it would “fall sharply” in the year after the referendum “and then recover”.
“This delay suggests firms may not respond as rapidly to large shocks that cause persistent uncertainty rather than short-term uncertainty, possibly because uncertainty leads firms to act cautiously,” the researchers said.
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The scale and duration of the uncertainty generated by the decision to leave the EU marked it out as unique, the report said.
“Compared to previous uncertainty shocks Brexit is notable for its persistently high level of uncertainty, which sets it apart from other measures of uncertainty which capture immediate responses to shocks that quickly die away.”
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