As the tenth anniversary of the Brexit referendum approaches, the economic consequences of the UK’s departure from the European Union are becoming increasingly evident. Contrary to some initial predictions, the country did not plunge into an immediate recession. However, experts now agree that the long-term effects have left households and businesses considerably worse off, with the UK’s economy shrinking significantly compared to what it might have been had it remained in the EU.
The Pound’s Decline and Its Aftermath
Following the referendum on 23 June 2016, the British pound experienced a dramatic decline. Initially, as results rolled in, the currency surged, only to plummet by 10% in a single day as key leave victories emerged. This sharp depreciation increased the cost of imports, leading to an inflation surge that squeezed household budgets and strained public finances.
A decade later, the pound remains below pre-Brexit levels. Once valued at nearly $1.50 against the dollar and €1.31 against the euro, it now hovers around $1.34 and €1.15. While exporters typically benefit from a weaker currency, many have been unable to take advantage of this situation due to ongoing uncertainty surrounding trade relations.
Stalled Growth and Investment
While the anticipated Brexit recession did not materialise, the UK’s growth trajectory has significantly slowed. The Office for Budget Responsibility (OBR) estimates that the national income will be 4% lower over 15 years due to Brexit. Research by Stanford University economist Nick Bloom suggests that GDP per capita is currently 6% to 8% less than it would have been without leaving the EU.
Investment has also taken a hit, estimated to be about 18% lower than it would have been under a remain scenario. John Springford from the Centre for European Reform notes that uncertainty surrounding Brexit led to an investment freeze that persisted for several years. This reluctance to invest in capital and equipment has contributed to productivity levels falling by up to 4%, hampering overall economic performance.
Employment Challenges and Changing Attitudes
While unemployment fell to historic lows following the Brexit vote, the pandemic’s impact has masked deeper issues within the labour market. Wage growth has stagnated, with average real wages only recently showing signs of recovery. The UK has also lagged behind other G7 nations in workforce participation rates, with a notable rise in young people aged 16 to 24 who are not engaged in education, employment, or training.
Public sentiment regarding Brexit has shifted dramatically since the narrow 52% to 48% vote to leave. Recent polling indicates that 70% of Britons now favour a closer relationship with the EU, with many supporting the idea of rejoining the bloc outright. This growing discontent highlights a significant shift in public opinion as the realities of Brexit continue to unfold.
Migration Patterns Post-Brexit
Despite promises made during the leave campaign, net migration to the UK surged to nearly one million in the year to June 2023, driven by factors including the war in Ukraine and the easing of pandemic-related restrictions. However, the number of arrivals from the EU has declined, leaving many sectors, particularly construction and hospitality, struggling with staff shortages.
In recent months, net migration has begun to fall, with tougher controls implemented under both the Conservative and Labour governments. This ongoing shift in migration patterns adds another layer of complexity to the post-Brexit economic landscape.
Why it Matters
The decade since the Brexit vote has revealed significant economic challenges for the UK, impacting everything from currency value to public sentiment and workforce participation. As households grapple with the financial repercussions and businesses navigate an uncertain trading environment, the long-term effects of leaving the EU are becoming increasingly clear. Understanding these changes is crucial not only for policymakers but also for citizens who are still feeling the sting of decisions made a decade ago.
