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Brexit

Brexit's Lasting Impact on the UK Economy

Strategic Insights

— 2 min read

The effects of Brexit on the UK economy will be reignited by the upcoming budget announcement, which will highlight a significant decline in productivity growth. According to the Office for Budget Responsibility (OBR), Brexit will reduce the UK's productivity potential by 4% and lead to a 15% drop in trade intensity, resulting in a substantial decrease in economic growth. This assessment is in line with the Bank of England's governor, Andrew Bailey, who stated that the impact of Brexit on economic growth will be negative for the foreseeable future.

Key Takeaways:

  • Brexit has resulted in a significant decline in the UK's productivity growth, with a 4% reduction in productivity potential and a 15% drop in trade intensity.
  • The OBR has consistently stated that Brexit will have a negative impact on the UK's economy, with a particular focus on the trade sector.
  • The UK's real GDP per capita has lagged behind the eurozone's, with a 4.4% increase between 2016 and 2024 compared to the eurozone's 9% increase.
  • The UK's exports have been weak since 2019, with a 14% decline in goods exports and a significant decline in services exports.
  • The Bank of England's governor, Andrew Bailey, stated that Brexit has resulted in higher trading costs, more red tape, and fewer opportunities for UK businesses to export their services abroad.
  • The productivity slowdown that began in 2008-9 can be attributed to Brexit, as the 2016 referendum snuffed out the recovery in business investment, which is crucial for productivity growth.

Statistics:

  • Real GDP per capita in the UK rose by 4.4% between 2016 and 2024, compared to the eurozone's 9% increase.
  • UK exports of goods and services in volume terms were lower in the second quarter of 2023 than in the final pre-Brexit quarter of 2019.
  • The UK's trade intensity (exports and imports as a percentage of gross domestic product) has dropped by 15% since Brexit.
  • The UK's real GDP per capita was up by a tiny 0.8% compared to the pre-Brexit final quarter of 2019.
  • The eurozone managed a 3.3% rise in real GDP per capita between 2019 and 2024.
  • The UK's inflation rate stood at 3.8% in August, lower than expected, but higher than the eurozone's 2.2%.
  • The UK's food price inflation was 4.5%, compared to the eurozone's 3%.
  • Brexit has resulted in a 14% decline in the UK's goods exports since 2019.
  • The Bank of England's governor, Andrew Bailey, stated that economic theory suggests that trade will adjust and rebuild over a longer time period.

Sources:

  • "Brexit: The Damage Is Done" by Andrew Bailey, Bank of England Governor (speech in Washington)
  • "Deglobalisation in Disguise" by Swati Dhingra, London School of Economics Centre for Economic Performance
  • Office for Budget Responsibility (OBR) report on productivity growth
  • SMMT (Society of Motor Manufacturers and Traders) data on car manufacturing
  • ONS (Office for National Statistics) data on goods exports
  • David Smith, Sunday Times article "Growth will be slower and people poorer than they would have been"

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