- The UK lags behind its peers in growth, investment and trade
- Many economists say Brexit is contributing to underperformance
- Polls show that Brits are increasingly regretting leaving the EU
- Pro-Brexit economist Lyons: Problems in Britain have long roots
LONDON, Jan 30 (Reuters) – Three years after leaving the European Union, Britain has yet to benefit from the Brexit dividend promised for its economy as it lags behind its peers on several fronts, including trade and investment.
The UK left the EU on January 31, 2020, but remained in the bloc’s single market and customs union for eleven months.
On that day, then-Prime Minister Boris Johnson said the country was finally realizing its potential and that he hoped it would grow in confidence with each passing month.
So far the opposite has happened, with a number of indicators underperforming relative to other economies.
Opinion polls show that Brits who regret leaving the EU are increasingly outnumbering those who don’t. A survey released Monday by news website UnHerd showed that this was now the case in all but three of the 632 parliamentary constituencies surveyed.
The government led by pro-Brexit Prime Minister Rishi Sunak says Britain is thriving with newfound freedoms.
Last week Treasury Secretary Jeremy Hunt questioned talk of decline, saying Brexit offers a brighter future with room for action that will attract investment in areas such as the green economy and technology.
Many economists say that leaving the EU isn’t the only cause of Britain’s woes – the country has been hit hard by the coronavirus pandemic – but it’s a factor that may help explain recent underperformance.
“It was more than a slow burn. It was a serious reduction in economic output,” said John Springford, associate director of the Think Tanks Center for European Reform.
“If you put up trade, investment and migration barriers with your biggest trading partner (EU), you’re going to have a pretty big impact on trade volume, investment and GDP,” he said, pointing to a set of bleak economic data.
The UK was the only advanced economy in the Group of Seven to regain its pre-pandemic size of late 2019 at the end of September last year, the most recent period covered by data.
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Springford estimated that Brexit reduced the UK’s economic output – compared to what it would have been had it not left the EU – by about 5.5% by mid-2022, based on a “look-alike” model in which an algorithm countries selects whose economic performance closely matched that of pre-Brexit Great Britain.
The government’s own forecasting organization Office for Budget Responsibility and the Bank of England also assume that the exit from the EU will cause net costs in the long term.
Some economists disagree with the consensus.
Pro-Brexit economist Gerard Lyons, an adviser to online wealth management platform NetWealth and who advised Boris Johnson during his years as Mayor of London, said it was wrong to blame Brexit for Britain’s woes.
“Our problems go back to Brexit,” said Lyons, pointing to the chronically low investment rates in Great Britain. “Reaching the benefits of Brexit depends very much on delivering a growth plan – how to leverage your post-Brexit leverage.”
He criticized the lookalike analysis method, arguing that some smaller countries selected by the models were unsuitable comparative models for a large economy like the UK.
TRADE BLOWS
Trade and investment data point to more Brexit troubles.
Exports, particularly goods, have disappointed over the past three years – despite high hopes for a post-Brexit “global British” rebalancing of the economy.
Total exports, including services, have grown less than any other G7 since late 2019.
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Boris Glass, senior economist at ratings agency S&P Global, said increasing red tape in UK-EU trade has particularly impacted the competitiveness of smaller UK manufacturers as they have fewer resources to deal with it.
“It is worth noting that the UK has more small exporters than, say, France or Germany. So they’re at a disadvantage in that respect,” Glass said. “If you’re an exporter with 20 employees, these forms are very expensive to fill out. Some of them just can’t keep up.”
Business investment has also grown less rapidly than in the United States, France or Germany since the Brexit referendum in June 2016, according to a Reuters analysis of data from the Organization for Economic Co-operation and Development.
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Some pro-Brexit economists say such statistics ignore the fact that UK business investment was unusually strong in the years leading up to mid-2016 and was bound to slow. But the evidence from business surveys overwhelmingly suggests that Brexit has been a factor behind weak investment in recent years.
“It is worrying that there appears to be no recovery in investment at all. And I think for us to sustainably recover from the Brexit shock, we need to see that surge,” Springford said.
The UK still has higher employment rates and lower unemployment than most EU countries, but there are some signs that Brexit may have affected the labor market as well.
Business groups want the government to ease their post-Brexit immigration rules as companies struggle to find workers, which the BoE fears will stoke inflationary pressures.
And unlike most of its G7 counterparts, the UK employment rate has yet to recover to pre-pandemic levels.
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Reporting by Andy Bruce Edited by William Schomberg and Mark Heinrich
Our standards: The Thomson Reuters Trust Principles.
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