UK Economic Performance because of Brexit
In a follow-up to my previous article on Adam Poser economic predictions he posited after the referendum in 2017, let's look at the realities today, being careful to factor in the global impacts of COVID and the Russian/Ukraine war.
As of January 2025, the United Kingdom’s economy reflects a complex interplay of global disruptions and domestic policy decisions. While the COVID-19 pandemic and the Russia-Ukraine conflict have had widespread global impacts, the UK’s departure from the European Union—Brexit—has introduced unique challenges that continue to shape its economic landscape.
Economic Growth and Trade
Recent analyses indicate that Brexit has contributed to a reduction in the UK’s gross domestic product (GDP). The Office for Budget Responsibility estimates a long-term GDP reduction of approximately 4% due to Brexit-related factors.? Additionally, the Centre for Economic Performance reported a ￡27 billion decrease in goods exports in 2022, with smaller firms being disproportionately affected.?
Inflation and Living Standards
The combination of Brexit and other global factors has contributed to higher inflation rates in the UK, leading to increased costs of living. The London Mayor’s Office highlighted that, as of 2023, the average UK citizen was nearly ￡2,000 worse off due to Brexit-related economic changes.?
Labour Market and Investment
The UK’s labour market has faced challenges, including labour shortages in key sectors such as construction. Business investment has also been tepid post-Brexit, slowing significantly compared to countries like the United States. Efforts to attract foreign direct investment continue, but uncertainties related to trade policies and market access have posed obstacles.?
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Policy Responses and Future Outlook
In response to these challenges, the UK government has initiated policies aimed at stimulating economic growth. These include infrastructure projects, planning reforms, and efforts to improve trade relations with both the EU and other global partners. However, the effectiveness of these measures remains to be seen, and the economic outlook is subject to uncertainties stemming from both domestic policy decisions and external geopolitical developments.?
Brexit’s Economic Impact
Brexit has led to significant shifts in the UK’s trade dynamics. The reintroduction of trade barriers with EU countries has disrupted established supply chains, increased costs for businesses, and introduced regulatory complexities. These changes have particularly affected sectors such as manufacturing and agriculture, which previously benefited from seamless trade within the EU. Additionally, the uncertainty surrounding future trade agreements has dampened business investment and confidence.
Rising National Debt and Borrowing Costs
In recent months, the UK has faced escalating borrowing costs, with yields on 10-year government bonds reaching levels unseen since the 2008 financial crisis. This surge is attributed to global factors, including concerns over sluggish economic growth and persistent inflation. Consequently, the cost of servicing the national debt has increased substantially, consuming a larger portion of the government’s budget and limiting its capacity to invest in public services and infrastructure.?
The combination of higher debt servicing costs and increased borrowing has contributed to a growing fiscal deficit. This situation poses challenges for the government’s fiscal policy, potentially necessitating spending cuts or tax increases to maintain fiscal sustainability. Moreover, the elevated borrowing costs reflect market concerns about the UK’s economic stability and its ability to manage its debt burden effectively.
In summary, while global events have undeniably impacted the UK’s economy, Brexit has introduced specific challenges that continue to influence trade, investment, and overall economic performance. Addressing these issues requires nuanced policy approaches and strategic international engagement.
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1 个月I would really love to hear Adam Posen view ??
And yet the EU share of world GDP in 2016 was 29.x% and in 2022 had already fallen to 14.85% by the end of 2022 (ahead of the worst case predictions of even the most pessimistic analysts as I recall). Today, it continues to struggle with a couple of outliers being slightly more resistant to the trend than others. In fact, it has very much followed the worst case trajectory. One has to have some context. At the same time exports to the rest of the world increased for Britain, while EU member that relied primarily on an EU centric market have suffered significantly. So the move by Britain to think more broadly about trade in 2016 would seem to be quite perspicacious in hindsight. I know where I now live there are serious concerns about what membership of the EU means for the chances of economic sustainability, let alone recovery. People talk about it everywhere you go and have been for some time with a sort of doom laden cynicism. The grass is not always greener. Overall, considering the collapse of the EU as a market, perhaps the problem was that the UK did not act sooner.
Unfortunately, the total 5-year impact is much higher than you have mentioned in you article ￡27 billion. I say Tax-take alone est. ￡50- ￡60 billion, never mind the Trading / GDP numbers. I wrote in the FT in 2016 before the Brexit predicting that total TCO /HIT to the UK Economy to be more than ￡200 billions over 5-years, and my number are much closer to ￡200 billion depending how you look at it. So, UK exported over ￡350 billion to EU each year, and Imports from EU est. ￡460 plus billions. Here are some estimates about the TCO/Total impact to UK GDP/Revenues: Let's say low estimates ￡300 billion x 5 years = ￡1.5 trillion Lower-end Estimate: FT 12.5% loss on total = ￡187.5 Billion Now apply additional added Compliance & Friction Cost at 5% but it is actually higher close to 7-10%. = ￡75 billion over 5-year. TCO / Total Impact = ￡262.5 billion, with margin of error at 10%, est. ￡236.25. Higher end Estimates by ESRI says impact is 16%. So let's apply the ESRI : Let's say low estimates ￡300 billion x 5 years = ￡1.5 trillion Lower-end Estimate: ESRI 16% loss on total = ￡240 Billion Compliance & Friction Cost at 7% = ￡105 billion over 5-year. TCO/Total Impact with 10% Margin or Error = ￡310 billion No wonders UK feels POOR!