Logistics and transportation of container cargo ships and cargo planes with working crane bridge in shipyard at sunrise
Like it – or not – it’s been three years since the United Kingdom left the European Union.
Since then there has been a pandemic, which was quickly followed by an energy crisis.
This has made it difficult to decipher exactly what impact Brexit has had.
The latest data points to a hit for the economy – albeit in an unexpected way.
Act
When the UK withdrew from the single market and customs union in 2021, companies trading with the EU faced new rules, new paperwork and new controls for some goods.
This sparked fears over what would happen to the £550bn trade between the UK and its closest trading partner.
There was an initial drop in the amount the UK exported to the EU. Once the teething troubles were over, trading volume bounced back to pre-pandemic levels, according to official figures. But one could argue that without Brexit, trade might have grown more.
When the UK Chambers of Commerce recently surveyed 500 businesses, more than half said they were still grappling with the new system. The bureaucracy may have put some small exporters off altogether. An examination of customs classifications shows that the variety of goods we export has decreased.
Similarly, imports have recovered to pre-pandemic levels. However, academics from the London School of Economics point out that the price of food imported from the EU – like tomatoes or potatoes – may have increased by as much as 6% compared to 2020 and 2021. That was before the recent spike in inflation.
On the other hand, this has made it easier for domestic food manufacturers to compete. Economists say they may have had a £5bn increase.
However, it is the overall picture that is more striking.
Most nations experienced a collapse in international trade at the height of the pandemic. Since then trade in the rest of the G7 countries has recovered in a way relative to the size of their economies that the UK has not.
Chart showing the trade openness of the UK and other G7 countries
If you look at UK trade with the rest of the world, as well as trade with the EU, it has fallen relative to the size of the UK economy as a whole. Trade has not recovered as quickly after the pandemic as in other major nations, it has lost importance in contributing to our prosperity. “Global Britain” has become less open. It lags behind.
The story goes on
trade agreement
What about new trade deals? You could help – but it’s still early.
A total of 71 trade deals have been struck, which is fast progress, but the vast majority are just repeating deals Britain had when it was part of the EU.
The UK has signed new deals with Australia and New Zealand – but they are expected to give only a small boost to trade and even that will take several years. They’re also controversial – some UK farmers fear they’ll lose.
Discussions are still ongoing with India and members of a transpacific pact. They’re taking longer than previous ministers had hoped – but analysts believe slower action could actually lead to more beneficial deals.
Trade deals with some of the biggest players like the US and China remain elusive.
investment
How much companies spend on factories, training, equipment and technology is also influenced by our relationship with the EU. And the chancellor acknowledges that investment can boost growth.
But investment has stalled since the referendum as companies remain suspicious of the outlook for the economy. Investment wasn’t great even before 2016, but if it had continued its trend before the referendum, an analysis by pro-European think tank UK in a Changing Europe suggests it could be around 25% higher than it is now.
Economists argue about how to explain this gap. Some – including the International Monetary Fund – have suggested that uncertainty surrounding Brexit, including the Northern Ireland Protocol unresolved issue, has deterred at least some spending. Sir Richard Branson is among business bosses who have suggested the cost of Brexit bureaucracy would put them off investing in the UK.
Pro-Brexit group Briefings for Business claims the figures are misleading and that there is no evidence of a Brexit-related fall in investment.
Ultimately, though, a lack of investment means we’re a less efficient, lower-earning economy than we could be.
jobs
Leaving the EU also meant changes to the rules on free movement of workers and the introduction of a points-based immigration system, which has drawn complaints from some unlikely quarters.
The chief executive of fashion chain Next, Lord Wolfson and Wetherspoons boss Tim Martin both backed Brexit – but both called on the UK to take on more workers.
A study by the think tank Center for European Reform and UK in a Changing Europe assumes that there will be 330,000 fewer workers in Great Britain as a result of Brexit. That may only be 1% of the total workforce – but sectors like transport, hospitality and retail have been particularly hard hit.
Wetherspoons boss backed Brexit but says Britain must now take on more overseas workers
A lack of labor has created shortages and skyrocketed bills for customers.
Some commentators argue that these restrictions will persuade companies to upgrade their employees’ skills and invest more.
Meanwhile, the financial services sector may have lost 7,000 jobs, according to a House of Commons report, but that’s far fewer than the 70,0000 previously feared.
What now?
It all adds up to an economy that has fared less well than its peers in recent upheaval. The UK is the only major rich economy to remain smaller – poorer – than it was before the pandemic, and Brexit could be a factor.
Chart showing UK growth since 2019
Overall, the government’s independent regulator, the Office for Budget Responsibility, believes the UK will ultimately be 4% worse off than it would have been if we had voted no to Brexit – although for many voters, Brexit is more about sovereignty when it came to the economy.
But there is still a lot to be settled.
It’s not just the Northern Ireland Protocol, it’s permanent agreements for industries like financial services, fisheries and electric vehicle parts, science collaboration and ways to cut red tape.
There are potential gains there, and realizing them is a matter of both political and economic strategy.
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