As the UK approaches the tenth anniversary of the Brexit referendum, a clearer picture of its economic ramifications has emerged. While immediate predictions of a recession did not materialise, the long-term effects of leaving the European Union have left households and businesses significantly worse off. With a decade of data to assess, experts are now confirming that the decision to exit the EU has resulted in a considerable reduction in the nation’s economic performance.
The Pound’s Decline: A Ripple Effect on Households
The value of the British pound has been volatile since the referendum on 23 June 2016. Initially, there were fluctuations as Nigel Farage signalled a potential defeat; however, key victories for the Leave campaign sent the currency tumbling by 10% in one of its steepest single-day declines. This devaluation has increased import costs, contributing to inflation that has strained public finances and household budgets alike.
Today, the pound remains below its pre-referendum levels, trading at around $1.34 and €1.15 compared to its previous standings of approximately $1.50 against the dollar and €1.31 against the euro. This decline has not only impacted British tourists but has also hindered exporters who typically benefit from weaker currency values. The uncertainty surrounding trade has overshadowed potential gains, leaving many exporters unable to capitalise on a cheaper pound.
Slower Growth and Investment Stagnation
Contrary to early fears of an impending economic downturn, the anticipated recession did not occur immediately after the vote. This is largely attributed to the government’s decision to maintain EU membership until January 2020, followed by an 11-month transition period. Nevertheless, the long-term outlook is stark, with the Office for Budget Responsibility predicting a 4% reduction in national income over a 15-year horizon.
Research by Stanford economist Nick Bloom has revealed that UK GDP per capita is currently between 6% and 8% lower than it would have been had the UK remained in the EU. This gap in growth has become increasingly pronounced when compared to other advanced economies, which have continued to progress steadily.
The lack of a clear post-Brexit strategy led to a significant freeze in business investment, which is estimated to be nearly 18% lower than it would have been if the country had voted to remain. This investment gap has been detrimental to productivity, contributing to a decline of up to 4% as businesses hesitated to invest in new equipment and projects amidst ongoing uncertainty.
Employment Challenges and Public Sentiment
While unemployment initially dropped to some of its lowest levels since the 1970s, the pandemic has masked deeper underlying issues. Real wage growth has been sluggish, with average wages rising by just £43 per week after accounting for inflation. Moreover, the UK has lagged behind other G7 nations in workforce recovery, with rising ill health leading to increased economic inactivity.
Young people have been particularly affected, with over a million 16- to 24-year-olds now classified as not in education, employment, or training (NEET)—the highest level since 2013. Estimates suggest that employment levels are currently between 3% and 4% lower than they would have been in a remain scenario, highlighting the long-term challenges posed by Brexit.
Public support for Brexit has waned significantly since the narrow 52%-48% vote to leave. Recent polling indicates that 70% of Britons favour a stronger relationship with the EU, and a majority are open to the idea of rejoining the bloc outright. This shift in sentiment underscores a growing acceptance that the anticipated benefits of Brexit have not materialised.
Migration Dynamics Post-Brexit
In a stark contrast to pre-referendum promises, net migration to the UK has surged to nearly 1 million in the year leading up to June 2023, driven in part by the war in Ukraine and the lifting of pandemic restrictions. Changes to migration rules have also played a role, with a significant number of arrivals now coming from outside the EU, while net migration from EU nations has declined.
Employers in various sectors, particularly construction and hospitality, have reported staff shortages due to the loss of readily available EU workers. As government controls tighten, net migration has further decreased to 171,000 last year, signalling ongoing challenges in meeting workforce demands.
Why it Matters
The economic landscape of the UK has been irrevocably altered by Brexit, as evidenced by decreased growth, stagnating wages, and rising public discontent. As the nation grapples with these challenges, the long-term implications continue to unfold, affecting everything from household finances to business investment strategies. Understanding these developments is crucial for navigating the complexities of post-Brexit Britain and for shaping future economic policies that can restore stability and growth.
