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Brexit reduces UK productivity by between two and five per cent

According to research from the Bank of England (BoE), a direct causal link between Brexit and the reduction in UK productivity of somewhere between two and five per cent has been found.

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BoE report

The research, which took into account the responses of over 6,000 UK businesses, found an average reduction in capital spending of 11 per cent. The BoE staff paper was funded by the UK government and carried out in collaboration with Nottingham and Stanford universities. Although the survey is technically an academic one, it has been referenced in the BoE’s August inflation report.

The respondents, comprising UK business representatives, were asked a series of questions that explored how companies feel they have been and will be affected by the Brexit process. The report discovered that companies with greater European exposure and more uncertainty over Brexit were experiencing the most significant falls in investment.

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A key aspect of the findings is that the researchers claim to have now found a causal link between Brexit and a drop in productivity rather than simply a correlational one, as is reported in most previous or similar studies. It is expected that these findings will help to bolster support for remaining in the EU or seeking a deal.

Causes of productivity drop

Productivity, in simple terms, is a calculation of output divided by input (labour, costs, materials). The report found that employment rates have remained the same for businesses that are and are not directly affected by Brexit; therefore, recent drops in productivity could not be attributed to employment rates, either for companies experiencing small or large drops in investment. Other responses suggest that the time top management has spent in Brexit-related meetings has also affected productivity, with managers distracted from the job of improving and even maintaining core activities.

Businesses suffering from a reduction in productivity should consider making use of new software that reduces the need for human labour, from automated manufacturing processes to financial advisor software. Financial advisor software, for example, can dramatically reduce the man hours that advisors spend looking at numbers; in turn, this helps to improve overall productivity.

There is no doubt that the findings of this report will bolster the case for the UK remaining in the EU.