00:00It has been nearly 10 years since the UK voted to leave the European Union.
00:04Bloomberg Economics has done some analysis that shows the choice to leave the EU may have caused a GDP hit
00:09of between 2 and 4 percent.
00:12Now some politicians are proposing new formal ties with Europe, but that might require costly concessions.
00:18Let's get into this conversation, shall we?
00:20Ten years on, Dan Hansen joins us, chief UK economist at Bloomberg Economics.
00:24Dan, well, you've opened a can of worms, haven't you?
00:27I remember 10 years ago, you know, we were drum beating towards the vote itself.
00:32But, you know, a lot's happened since then.
00:33So talk us through how you've arrived then at this conclusion of a 2 to 4 percent hit to GDP.
00:39Because what intrigues me about this, as soon as we made the decision, well, as soon as we actually left,
00:44COVID hit.
00:45Yes.
00:45And all kinds of weird things happened to lots of economies around the world.
00:49So how have you got to this conclusion?
00:50So the way most people come at this and how we've come at it is that what you need to
00:55do is build a world or build a scenario where the UK didn't leave the European Union.
01:01And you do that by proxying the path of the UK using different countries.
01:05Now, a lot of models that do this, what we find is that the US has quite a big weight
01:11in them.
01:11And the reason why the US has quite a big weight in them is because prior to the referendum, the
01:16UK and the US had a fairly close GDP moved in a fairly similar way.
01:21Since then, that has changed quite dramatically.
01:24So if we keep the US and also Ireland in our model, because Ireland has very volatile GDP, we saw
01:30that the other day with your area GDP, Ireland had a massive fall in GDP.
01:35We actually get a huge hit to the economy.
01:37We get a 10 percent hit, which just seems enormous to me.
01:40It means it implies the economy would have grown one percentage point faster a year over the past 10 years.
01:47That doesn't seem plausible to me.
01:48So what we've done is we've made some adjustments to the US.
01:50We've made an adjustment for Ireland, and that brings us down to this range that you mentioned of 2%
01:56to 4% of GDP.
01:57The two points to make is we take out Ireland, as I say, because of the GDP figures.
02:02We take out the US because they've had a massive fiscal stimulus.
02:06They didn't experience an energy shock.
02:08They've had an AI investment boom.
02:10And you can't attribute any of those things to Brexit.
02:12So that's how we get to the number.
02:14How does that leave calculations about the benefits or not of rejoining, which is now part of the political discussion,
02:21at least amongst some in the Labour Party?
02:25How consequential, how material would that be?
02:27What would it have to look like to make up for that 2% to 4% range?
02:31So it's really difficult because of the politics, as you say.
02:35With Brexit and the negotiations around Brexit, there have always been red lines.
02:39And the red line for the UK is freedom of movement of Labour.
02:42That is the big one.
02:43And so that limits how far you can ever go in terms of the reintegration with the EU.
02:48But you're right, it is becoming a big conversation.
02:50The reason why it's becoming a big conversation is because growth has been weak,
02:53and the Labour government thinks that getting closer to the EU, I should say, is the answer.
02:59But I think the key point is that, as is always the case with Brexit, politics clashes with economics, and
03:05you can only go so far.
03:07So just to answer your question directly, in terms of the numbers, you might be able to halve the economic
03:12hit that we've just spoken about by getting closer to the EU.
03:17But that would look something like a Swiss deal.
03:20Switzerland is not in the European Union.
03:21But the key point with Switzerland as well is they have to accept freedom of movement of Labour.
03:25So there are these big trade-offs, and the final point I'd make is it takes an awful lot of
03:29time to negotiate these things.
03:32We have an election in 2029, or by 2029.
03:36An anti-EU party is leading in the polls, so you have to question whether the EU would have any
03:41benefit of them coming to the table to negotiate with the UK.
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