LONDON — Post-Brexit Britain has “significantly underperformed” other advanced economies since the 2016 EU referendum, according to new analysis from Goldman Sachs, which aims to quantify the economic cost of the Leave vote.

In a note last week entitled “The Structural and Cyclical Costs of Brexit,” the Wall Street bank estimates that the U.K. economy grew 5% less over the past eight years than other comparable countries.

The true hit to the British economy could be anywhere from 4% to 8% of real gross domestic product (GDP), however, the bank said, acknowledging the difficulties of extracting the impact of Brexit from other simultaneous economic events including the Covid-19 pandemic and the 2022 energy crisis. Real GDP is a growth metric that has been adjusted for inflation.

Goldman Sachs attributed the economic shortfall to three key factors: reduced trade; weaker business investment; and labor shortages as a result of lower immigration from the EU.

The U.K. voted 52% to 48% to leave the EU on June 23, 2016, but officially exited the union on Jan. 31, 2020.

Over that period until today, U.K. goods trade has underperformed other advanced economies by around 15% since the Leave vote, according to the bank’s estimates, while business investment has fallen “notably short” of pre-referendum levels.

Meantime, immigration from the EU has fallen — a key pledge of the Vote Leave campaign — only to be replaced by a less economically active cohort of non-EU migrants, primarily students, the research said.

“Taken together, the evidence points to a significant long-run output cost of Brexit,” the report’s authors said.

The bank noted the reduction in trade was in line with expectations and the underperformance in investment was “more pronounced” that anticipated. However, it said the shifts in immigration patterns posed the most important cyclical repercussions for the U.K. economy — and inflation in particular.

“The post-Brexit change in immigration flows has reduced the elasticity of labor supply in the U.K., contributing to the post-pandemic surge in inflation and pointing to more cyclical labor market and inflation pressures going forward,” the report said.

U.K. real GDP per capita has barely risen above pre-Covid levels and currently stands 4% above the mid-2016 level, it said. That compares to 8% for the euro zone area and 15% for the U.S.

Meantime, the U.K. has recorded higher inflation over the period, with U.K. consumer prices rising 31% since mid-2016 compared with 27% in the U.S. and 24% in the euro zone, it added.

While the report noted that new non-EU trade agreements could potentially mitigate the costs of Brexit, estimates suggest that the benefit is likely to be small.

The British government estimates that its free trade agreement with Australia will boost U.K. GDP by 0.08% per year, while the economic impact of a new trade deal with Switzerland is unclear.

Meantime, the timelines for prospective new trade deals with major partners such as the U.S. and India have not yet been announced.