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European Union

Brexit's Hidden Costs: A Year After the UK's Break with the EU

Strategic Insights

— 1 min read

The UK's decision to leave the EU, announced early in the 2016 Brexit referendum, was met with warnings of short-term disaster, including queues of 7,000 lorries in Kent and the impact on the availability of medicines and essential goods. However, a year into this new era, while disruption has not been visible, it has been significant. The pandemic masked the upheavals, and as the economy reawakens, the true extent of the costs of Brexit will become more apparent.

Key Takeaways:

  • Nearly one-third of British companies that trade with the EU have suffered a decline or loss of business; 17 per cent that previously did business with the bloc have halted it, for now or for good.
  • Businesses are facing significant costs from rejigging operations and supply chains.
  • Early evidence supports economists' consensus views: erecting barriers with the UK's nearest and largest market for which there is no comparable substitute will harm growth over time.
  • Small companies, in particular, are turning inwards on the UK, resulting in decreased economies of scale and lower productivity growth.
  • The financial services industry has lost less business than feared but is turning from the EU, giving up on the equivalence deal it sought.
  • Post-EU trade agreements, such as those with Australia, provide only a minor economic boost, while hopes for a US deal have receded.
  • Chancellor Rishi Sunak's exhortation to trade more with China sits uncomfortably with the hawkishness towards Beijing of key-Brexit allies, making market rules set by China less palatable than the EU's.

Statistics:

  • 17% of British companies that previously did business with the EU have halted it, for now or for good.
  • Nearly one-third of British companies that trade with the EU have suffered a decline or loss of business.
  • The pandemic suppressed business and leisure traffic, masking the upheavals caused by Brexit.
  • 7,000 lorries were forecast by Leave-supporting minister Michael Gove as a "reasonable worst-case scenario" for January 1.

Sources:

  • Financial Times

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