As the tenth anniversary of the Brexit referendum approaches, an assessment of the economic landscape reveals significant challenges. While the immediate recession anticipated by some experts did not materialise, the long-term consequences of leaving the European Union have left households and businesses feeling the pinch. Current analyses suggest that the UK economy is markedly smaller than it would have been had the country chosen to remain in the EU, with trade, investment, and productivity all suffering setbacks.
The Pound’s Decline and Its Consequences
The aftermath of the Brexit vote saw a turbulent shift in the value of the pound, which experienced its largest single-day decline in history shortly after the results were announced on 23 June 2016. Initially, the pound rose as the Leave campaign appeared to falter; however, that optimism was short-lived as early results indicated a decisive lead for the Leave side. This triggered a dramatic 10% drop in the currency’s value, which has yet to recover to pre-referendum levels.
The depreciation of the pound has had far-reaching effects on the cost of living, particularly as it made imports more expensive. As a result, inflation surged, placing additional financial strain on families across the nation. Despite the typical advantage that exporters might enjoy from a weaker pound, uncertainty surrounding post-Brexit trade agreements has hampered their ability to capitalise on the situation.
Economic Growth Stagnation
While the anticipated Brexit recession did not occur, the UK economy has experienced a pronounced slowdown. The Office for Budget Responsibility (OBR) estimates that national income will suffer a cumulative 4% loss over the next 15 years. Research indicates that GDP per head is currently between 6% and 8% lower than it would have been without Brexit. According to Nick Bloom, an economist at Stanford University, the gap in economic performance between the UK and other advanced economies widened significantly after the referendum, suggesting a correlation with Brexit.
The challenges faced by the UK economy are not just limited to growth; they have also impacted trade relationships. Since the end of the EU transition period on 31 December 2020, UK goods exports have lagged behind those of other G7 nations. The trade agreement negotiated by Boris Johnson with the EU has resulted in increased friction for goods, making it more cumbersome for exporters to navigate regulatory hurdles and border delays.
Investment and Employment Concerns
Political uncertainty following the Brexit vote has led to a significant decline in business investment. Estimates suggest that investment is approximately 18% lower than it would have been had the UK opted to remain in the EU. This reluctance to invest in equipment and projects has stifled productivity, causing a long-term stagnation in economic growth.
Although unemployment rates dropped to historic lows after the referendum, the onset of the COVID-19 pandemic revealed deeper issues within the labour market. Wages have stagnated, with average real wages showing only modest gains post-pandemic. Furthermore, the UK has seen a decline in workforce participation, particularly among younger demographics, leading to a troubling uptick in the number of young people not engaged in education, employment, or training.
Changing Attitudes Toward Brexit
Public sentiment towards Brexit has shifted significantly since the initial 52%-48% vote in favour of leaving the EU. Recent polling indicates that 70% of Britons now favour a closer relationship with the EU, and a majority are open to the idea of rejoining the bloc altogether. Support for rejoining is strongest among Labour and Green voters, while those aligned with the Reform UK party remain staunchly opposed.
Net migration to the UK surged following Brexit, reaching unprecedented levels, primarily due to changes in migration rules and external factors like the war in Ukraine. However, net migration from EU countries has decreased, exacerbating workforce shortages across various sectors. Recent policy changes have led to stricter controls, resulting in a drop in net migration figures as the government grapples with the challenges of balancing immigration and economic needs.
Why it Matters
The economic ramifications of Brexit continue to unfold, with households bearing the brunt of rising costs and diminished growth prospects. As the UK navigates its post-Brexit reality, the disconnect between political promises and economic outcomes has led to a growing demand for clarity and stability. Understanding these consequences is crucial for policymakers as they strive to address the ongoing challenges faced by both businesses and families in the wake of this monumental decision.
