Grossman Comments on the Economic Impact of Brexit

Professor of Economics Richard Grossman was asked by Wales Online about his expectations for the economic impact of Brexit over the next few years. He said:

“Leaving the European Union will be a drag on the British economy in the medium term. Even before Brexit takes effect, however, the economy will be hurt by two factors: expectations and uncertainty.

“The expectation that the UK will no longer have free access to the European market may lead exporters to reorient production toward domestic consumption or export to non-EU regions well before Brexit comes into force. UK-based financial firms may shift operations to EU locations in anticipation of Brexit, rather than waiting until it is a fait accompli.

“And firms that rely on high-skilled labour may relocate to other countries if they expect the reduction in immigration that is expected to accompany Brexit to  reduce the pool of talented workers in the UK.

“In addition to its anticipated effects, the economy will suffer from the uncertainty surrounding Brexit. There really is no precedent for a country to leave the EU, so no one really knows how the negotiations will turn out.

“And markets hate uncertainty. The worse the perceived effect of Brexit, the worse a drubbing the pound will take.

“A steady decline might support exports to some extent, but will lead to inflation at home as imported goods become more expensive. What is more likely than a steady decline is a more volatile pound, which will help no one.”