Three years after Brexit: UK has worst economy among rich countries

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The Office of Budget Responsibility, which oversees the British government’s accounts, believes the UK economy is 4% smaller because of Brexit. UK companies have had to deal with new rules and bureaucracies Getty Images It’s been three years since the UK left the European Union. Since then, there has been a pandemic and an energy crisis – which makes it difficult to understand exactly what the impact of Brexit was on the British economy. Recently released official data indicate that the impact was big – but not in the way many expected. Trade With the UK leaving the single market and the European customs union in 2021, companies trading with the European Union had to deal with new rules and bureaucracies for some goods. That has raised fears about Brexit’s impact on the roughly $670 billion worth of trade between the UK and the European Union – its closest trading partner. Initially there was a drop in UK exports to the EU. But after some adjustments, trade volumes returned to pre-pandemic levels, according to official data. Still, it could be argued that trade could have grown even more had it not been for Brexit. A recent survey by the British Chambers of Commerce entity with 500 companies showed that more than half of them still face difficulties with the new rules. The bureaucracy may even have caused the end of business for some small exporters. Another study showed that the variety of goods exported by the United Kingdom has diminished. Something similar happens with imports. Volumes recovered to pre-pandemic levels. But researchers at the London School of Economics say that the price of food imported from the EU (such as tomatoes and potatoes) rose by as much as 6% in 2020 and 2021. This happened even before the recent spike in inflation. On the other hand, this has increased the competitiveness of British food producers, with gains of up to $6 billion. But when you look at the bigger picture, a different picture emerges. Most countries experienced a collapse in international trade at the height of the pandemic. Since then, the recovery in trade relations has been better in the other G7 countries, compared to the United Kingdom. The G7 brings together – in addition to the United Kingdom – Germany, Canada, the United States, France, Italy and Japan. The proportion of international trade within the British economy has fallen. In the UK, imports and exports did not recover as quickly as in other countries. The UK is lagging behind in foreign trade. Trade agreements What about the new trade agreements signed by the UK? They can contribute to improving trade relations — but it is still too early to understand what the impact of this will be. So far, 71 trade deals have been closed, which is fast forward. But the vast majority of these agreements just reproduce the terms that already existed when the UK was still part of the EU. The UK has signed new agreements with Australia and New Zealand, but the impact of these negotiations is small and could take years to come. Furthermore, the agreements are controversial. UK farmers say they stand to lose from them. There are still ongoing negotiations with India and the Pacific countries. Despite the delay in reaching an agreement, some analysts believe that this delay could lead to better terms for the UK. Trade agreements with some of the biggest international players, such as the US and China, remain elusive. Investments How much companies invest in factories, training, equipment and technology is also affected by the relationship with the EU. But investment in the UK has been stagnant since the 2016 referendum. Businesses remain cautious about their outlook for the economy. Investment was not doing well even before 2016, but if it had continued its pre-referendum trend it could be around 25% higher than it is now, according to a consultancy. Economists still do not understand this phenomenon. Some – such as the IMF – have suggested that the uncertainty surrounding Brexit has held back many investments. Entrepreneurs like Richard Branson of the Virgin group are among the leaders who said the cost of Brexit bureaucracy would deter them from investing in the UK. Brexit advocacy group Briefings for Business says the numbers are misleading and there is no evidence of a Brexit-related impact on investment. Ultimately, however, the lack of investment means that the British economy is less efficient than it could be. Jobs Brexit also changed rules on the free movement of labor and created a points-based immigration system. This generated complaints from some sectors which were not expected to have problems. The director of the fashion chain Next, Simon Wolfson, and the director of the Wetherspoons pub chain, Tim Martin, supported Brexit – but both called for the UK to allow more migrant workers. A study by the Center for European Reform and UK in a Changing Europe consultancies suggests there are 330,000 fewer workers in the UK as a result of Brexit. That may only represent 1% of the total workforce — but sectors such as transportation, hospitality and retail have felt the difference. The lack of workers is causing prices to rise for consumers. Some argue that these restrictions will make companies invest more in the qualification of their employees. But in the financial services sector, 7,000 jobs may have been destroyed because of these restrictions, according to a report by the British Parliament. Still, that number is much lower than pre-Brexit projections of 70,000 jobs lost. And now? The UK is the only major rich economy that remains smaller – poorer – than before the pandemic. And Brexit could be one of the factors in this problem. The Office of Budget Responsibility, which oversees the British government’s accounts, believes the UK economy is 4% smaller because of Brexit. For many voters, Brexit is more about national sovereignty than economics. But there is still much to be done. Some Brexit points are still unresolved – such as the Northern Ireland protocol, permanent rules for sectors such as financial services, cooperation in science and ways to reduce bureaucracy. The gains that can emerge in these areas depend not only on economics but also on politics.

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