Brexit and the cost of living: a tale of two phases

We employ Synthetic Control Method techniques to estimate the causal effect of Brexit\r\non the consumer price index (CPI) in the United Kingdom. We construct a counterfactual\r\nCPI index from a weighted pool of comparable economies and find that the price level\r\nof the United Kingdom rose approximately 7 percentage points more than its synthetic\r\ncounterpart, between 2016Q2 and 2024Q4. This accounts for over a quarter of total inflation during the period. We attribute about 2 percentage points of this increase to the\r\ndepreciation of the British pound after the Referendum and the remaining 5 percentage\r\npoints to the change in trading relationships that ensued the 2021 Trade and Cooperation\r\nAgreement.