Understanding post-referendum weakness in UK import demand and UK balance of payments risks for the euro area

Valerie Jarvis and Tobias Schuler

Economic Bulletin Articles, 2021, vol. 3

Abstract: This article aims to take stock of how Brexit-related developments in UK import demand affected euro area foreign demand over the period 2016-19. UK import growth has slowed markedly since the Brexit referendum in 2016, particularly in terms of imports from the EU. We find that the depreciation of sterling squeezed UK household purchasing power, leading to lower import demand. We employ an ECM regression of UK import growth on the various GDP components and relative prices and detect a reduction in the UK’s overall import propensity since the referendum. We also identify sustainability risks for euro area foreign demand emanating from the UK’s balance of payments. JEL Classification: F14, F17, F32

Keywords: Brexit; current account; stockbuilding; trade shock (search for similar items in EconPapers)
Date: 2021-05
Note: 1725816
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbart:2021:0003:1

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