In the months after Boris Johnson signed his post-Brexit trade deal with the European Union, the coronavirus masked the economic damage of leaving the bloc. As the pandemic drags on, the cost becomes clearer, and voters take notice.
Brexit has been a drag on growth. It brought new red tape into trade between Britain and its largest and closest market, and removed a large amount of the EU workforce from the country many companies had come to depend on. The combination has exacerbated supply chain shortages, fueled inflation and hampered trade.
The prime minister hailed the signing of the trade deal almost a year ago as the time when Britain regained control of its destiny. If it was, voters seem increasingly unhappy with the outcome. According to a November poll by Savanta Comres, the majority of the British population would now vote to rejoin the EU, including one in ten who voted to leave in the 2016 referendum. In June, only 49% wanted to reverse Brexit.
In recent days, David Frost, Johnson’s key partner in the Brexit negotiation, resigned and became the third Brexit minister to resign. In his resignation letter, Frost urged Johnson to use Brexit to turn the UK into “a low-tax, lightly regulated business economy” but expressed dismay at the prime minister’s direction of travel, a sign that the Brexit is disappointing those who saw it as a once-in-a-generation opportunity to reverse government regulation.
A year after the trade deal was signed, here’s a look at how Brexit affected UK businesses and the economy, and how the initial result compares to the predictions of economists and analysts.
Britain’s trade with the EU has declined since the country left the bloc, and businesses were hit by new customs procedures and controls.
In October, the UK’s trade in goods with the EU was 15.7% lower than it would have been if Britain had remained in the single market and the EU customs union, modeled after the Center for the European Reform, an independent think tank. That’s in line with a 2018 UK government analysis, which predicted a 10% decline in trade.
But the figures can be flattered by the fact that the UK has delayed the implementation of many of its post-Brexit border controls until 2022. Starting in January, EU imports will need to be immediately accompanied by a customs declaration. , and food products will face summer inspections.
Britain has made only limited progress in signing trade deals that go beyond the deals it enjoyed as a member of the EU. Earlier this month, the UK signed its first fully independent trade agreement, with Australia, and preliminary terms were agreed with New Zealand. But the economic momentum from both deals is expected to be limited. A trade deal with the US, touted as one of Brexit’s top prizes, appears to be years away.
Even before the UK completed its separation from the EU in late 2020, Brexit had reduced the size of the UK economy by roughly 1.5%, according to estimates by the Office for Budget Responsibility. That was due to a drop in business investment and a transfer of economic activity to the EU in anticipation of higher trade barriers.
Since the UK-EU free trade agreement came into force, declining trade volumes mean that Brexit is on track to cause a 4% reduction in the size of the UK economy in the long run, according to the OBR. That’s in line with his pre-Brexit forecast.
“A 4-5% loss of GDP is a big problem,” wrote John Springford, deputy director of CER, in a research note, agreeing with the OBR’s prediction. “Governments around the world would adopt a policy that would increase GDP by 5%.”
And of all the UK regions, Northern Ireland, which remained in the EU’s single market for goods as part of the post-Brexit deal, appears to have performed better. The province has largely recovered from the impact of the pandemic, with third-quarter production just 0.3% below the last quarter of 2019, according to data from the Office for National Statistics. The UK as a whole is down 2.1% over the same time period.
Brexit has exacerbated the crisis in the UK job supply. 200,000 European citizens left Britain in 2020, pushed by stricter immigration rules and the deepest economic depression in three centuries. That helped trigger staff shortages in sectors like hospitality and retail, which have historically relied on EU workers and led to empty shelves.
A smaller group of the EU workforce also worsened Britain’s fuel crisis, with a shortage of tanker drivers contributing to fuel shortages during the summer. Since then, the Johnson government has eased visa requirements for EU workers, and since then the driver deficit has narrowed as more national drivers have been trained.
Brexit has pushed financial firms to move at least some of their operations, staff, assets or legal entities out of London to the bloc, but the shift has been less than anticipated, in part because the pandemic has hampered staff relocations. .
According to a survey by the accounting firm EY released this week, London has lost around 7,400 jobs, down from a previous estimate of 7,600. That is well below some estimates made before Britain left the block. In 2018, Bruegel, a think tank, said London could ultimately lose 10,000 banking jobs and 20,000 positions in the financial services industry.
British financial firms are still waiting for full access to the EU single market, something that depends on the EU granting a so-called equivalence decision. But progress has been glacial, as disputes over Northern Ireland have soured relations between the EU and the UK.
In the long term, the biggest threats to London are likely to come from New York, which has increased its involvement in derivatives trading, and the invisible opportunity cost of creating new jobs in the EU which, had it not been for Brexit, they could have been created in the UK.
© 2021 Bloomberg