In this paper I apply firm-level analysis to examine how the Brexit process has affected business investment in the UK. An interaction term of potential trade costs after exiting the EU and a measure of firms’ participation in global trade is used as a proxy for firm-level exposure to Brexit-related effects. The results suggest that potential trade costs have had a considerable and statistically significant negative impact on firm investment in the UK after the referendum. At the same time, the post-referendum sterling depreciation has likely contributed positively to investment expenditure by more foreign-oriented firms.

The paper addresses the issue of weak business investment in the United Kingdom (UK) by analyzing aggregate investment trends in the UK and other G7 peers, and investment drivers for UK firms. Data show that business investment has been structurally low in the UK, and likely the key driver of the UK’s relatively weaker growth performance since the middle of the last decade. Econometric investigations confirm a negative impact of Brexit-related uncertainty, the importance of financing constraints on firms, and a complementary role for public capital.

The United Kingdom is set to exit the European Union in March 2019. It is now in the process of negotiating its withdrawal from the EU. Once an agreement is reached, there will be an implementation period through the end of 2020. Complex issues still remain to be resolved, including the future status of the land border with Ireland. Growth over the past year has been moderate. The post-referendum depreciation caused an increase in inflation, depressing private consumption. Business investment growth has been constrained by protracted uncertainty about the future trade regime and potential increases in trading costs. Nonetheless, slack in the economy is limited as weaker demand is matched by slower supply growth. Growth is expected to continue at a moderate pace, conditional on a smooth Brexit transition and some recovery in labor productivity. A key downside risk is an exit

Economic growth is resuming, but challenges remain. Gradual fiscal consolidation is required over the short term to support the return of inflation to target and rebuild fiscal space, following substantial support during the pandemic and the energy crisis. Growing spending needs due to ageing and investment necessary to support the green transition call for tax reforms to strengthen revenues. Supply-side reforms are needed to sustain growth, including by providing businesses with certainty regarding taxation and land use planning to boost investment, and by strengthening work incentives to reduce economic inactivity. The United Kingdom is a front runner in the progress to reach net zero by 2050, but more effort is needed to accelerate emission reductions in residential housing, including a clear long-term strategy, pricing signals, regulatory timelines, and financial support to stimulate the market for decarbonised heating solutions. SPECIAL FEATURES: BOOSTING LABOUR SUPPLY; ENHANCING BUSINESS INVESTMENT TO LIFT PRODUCTIVITY; GREENING THE RESIDENTIAL HOUSING SECTOR

In this paper I apply firm-level analysis to examine how the Brexit process has affected business investment in the UK. An interaction term of potential trade costs after exiting the EU and a measure of firms’ participation in global trade is used as a proxy for firm-level exposure to Brexit-related effects. The results suggest that potential trade costs have had a considerable and statistically significant negative impact on firm investment in the UK after the referendum. At the same time, the post-referendum sterling depreciation has likely contributed positively to investment expenditure by more foreign-oriented firms.

United Kingdom: Selected Issues

In June 2016, Great Britain shocked the world, and itself, by voting in favor of pulling out of the European Union. Far from settling a long simmering and increasingly contentious debate within the UK and Europe, the aftermath of the "Brexit" vote sowed only more confusion, uncertainty, and angry debate about the economic, political, and even moral consequences of turning away from Europe and adopting a more protectionist, nationalist stance. That there was no clear plan for moving ahead with an EU exit in the wake of the vote only stoked greater anger and outrage. The debate and arguments rage on and are fully represented in this comprehensive volume, as the future of the UK and Europe hang in the balance.

EBOOK: Economics, 12e

Three years after the UK’s momentous EU referendum vote, multiple Brexit Secretaries and three rejected deals, the question remains: what exactly does the UK want? The UK’s financial services sector is deemed to be one of the most vulnerable to the impact of Brexit, and the consequential effect on the rest of the UK economy could be devastating. Despite benefitting from access to the Single Market, a significant proportion of the financial services industry voted ‘leave’. But rather than being driven by anti-immigration or xenophobic sentiments, research indicates it was based on a rational assessment of the cost and benefit of the EU membership, influenced by the post-crisis regulatory reform. The industry is disproportionally impacted by Brexit due to the divergence of business models within the industry, based on the relative reliance on domestic, international or European trade. Brexit – The Benefit of Hindsight analyses a number of economic indicators to answer the unanswerable question: what does the UK want? Will the UK economy suffer in the uncertainty surrounding our future or will we emerge stronger?

This paper assesses the stability of the financial system of the United Kingdom as a whole, not that of individual institutions. Since the last Financial Sector Assessment Program (FSAP), the U.K. financial system has put the legacy of the crisis behind it and has become stronger and more resilient. This FSAP found the system to be much stronger and thus better able to serve the real economy. Like all systems, the U.K. financial system is exposed to risks. Its position as a global hub exposes the U.K. financial system to global risks. In addition, the uncertainties associated with the possibility of British exit from the EU weigh heavily on the outlook.