What Would Brexit Mean for British Economy?

Capital Economics was commissioned by Woodford Investment Management to look at the impact a potential Brexit would have on the British economy (i.e. Britain exiting the European Union). Their report concludes that the future of the British economy doesn’t hinge on this decision, and points to a recovery of productivity levels as vital.


The report has found that immigration to Britain would be restricted and tailored to British migration requirements if we left the EU. Immigration from the EU boosts Britain’s workforce by around 0.5% a year, and a likely change in policy is the restriction of low skilled workers entering Britain.

Trade and manufacturing

Sixty-three percent of British goods exports are linked to European Union membership, and a British exit would indeed have an impact. While it won’t be a barrier to trade, a Brexit would mean additional costs for exporters. Britain would have two years to negotiate a withdrawal agreement with the European Union, so effects would not be instantaneous. The impact on the production sector is more uncertain, according to the report.

Financial services and the City

In the short term, the financial services sector stands to lose the most from a UK exit. However, the City’s competitive edge is founded on more than access to the single market, and if the City made trade deals with emerging markets those deals could pay dividends for the financial services sector in the long run.

Foreign investment

Foreign firms are likely to continue to want a foothold in Britain regardless of Britain’s EU membership. The report predicts a period of weak foreign direct investment if the UK decides to leave the Union as the UK renegotiates its relationship with Europe, but foreign direct investment will likely pick up again.

Public sector

Britain’s public finances are likely to benefit from a Brexit, but the benefit will probably be offset by other factors. Capital Economics predicts yearly savings of £10bn from contributions to the EU budget, but economic disruption and lower migration following a Brexit will likely result in the government having to compensate sectors of economy and trade.

Consumption and property market

The report considers the financial services sector’s role in holding up the property market to be overstated, and Capital Economics predict a limited impact on the property market and aggregate consumption if Britain were to leave the EU.

Click here if you would like to read the full report. 

If you have questions about the economic implications of the EU referendum and a possible Brexit, please get in touch with us.