Since the June 2016 Referendum on the United Kingdom’s membership of the European Union, there have been many studies and assessments of that decision’s impact on the UK and its various economic sectors and regions, including London. Broadly speaking, the literature concurs that Brexit has been exerting pressures on the London and UK economies, to the detriment of long-term growth and prosperity.

For example, after the EU Referendum, the depreciation of sterling led to higher import prices, and fed into diminished expectations of future income for consumers.  Other factors also adversely affected economic activity; uncertainty around the form Brexit would take undermined business sentiment and contributed to lower investment. There was a noticeable decline in business dynamism.  Moreover, the number of EU nationals – key contributors to vital London sectors such as hospitality, retail and professional services – started falling directly after the Referendum.

After the UK signed the Withdrawal Agreement with the EU, there was a further rise in prices as a result of increased trade barriers on imports. It has been over three years since this agreement was signed and became effective. With that in mind, it is important to ascertain to what extent this current arrangement between the two parties affects London’s economic prospects.

To answer this question, GLA Economics used a synthetic control methodology to measure the impact of Brexit-related effects on London’s economy. The control scenario features a composite combination of cities. The donor pool compares London with 19 global cities across the world, including major European capitals. The process of selection compares sector growth rates across cities as this captures a major attribute of London: its export-oriented service sector economy. 

The analysis finds that London’s Gross Value Added (GVA) was 6.2% (or £32 billion) lower in 2019 than it would have been had the UK voted to remain in the EU back in 2016.  This is a nearly £9,500 of foregone income for every household in London.  We specifically highlight the impact estimate for 2019 as this would not include the effect of other events (notably the COVID-19 pandemic), making Brexit a significant contributor to this result. This would also suggest that despite still technically being in the Customs Union and Single Market during the transition period (from 2016 to 2020), Brexit already caused political and economic uncertainty that significantly undermined investment into London. It also led to lower migration.  As a result, London’s productivity and output growth were harmed from the onset.

These results seem consistent with the findings of other studies that Brexit has damaged the London and UK economies – the estimates fall within the range found by the International Monetary Fund (IMF) in a review of studies.  Both economies are smaller than they would otherwise have been had the UK not voted to leave the EU.

It is important to note that Brexit has been a complex, drawn out, and uncertain process, and it remains incomplete.  Thus, the impact will change over time.  Some drivers of ongoing change will increase its economic impact, and others will mitigate it. Finally, it is worth emphasising that there will continue to be uncertainty around UK-EU relations depending on the political evolutions of both entities; such developments could yet affect London’s and the UK’s economic growth. 

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