The implications of Brexit for productivity
Due to Britain’s domestic penchant for enhanced regulation, the scope for radical reform of the regulatory environment to enhance productivity following Brexit is limited and its impact on Britain’s sectoral balance could even be harmful. British manufacturers might face a more difficult export outlook in important European markets but services would be relatively impervious to this. The ratio of British output from services and industry could be distorted even further in favour of the former if the financial services sector benefits more from new trading opportunities with emerging economies than the manufacturing or industrial sectors. This would create a difficult environment for productivity growth.
With respect to business investment, recent changes in this seem unconnected with uncertainty surrounding Britain’s continued membership of the European Union. As in the case of the Scottish referendum, business investment demonstrates little apparent sensitivity to these political considerations. Much would depend on businesses perceptions of the United Kingdom’s economic prospects post-Brexit. If these looked good, investment could be expected to rise. If not, then it would continue to stagnate. This, however, would be the case with or without Brexit. (See Figure 22.)