As the tenth anniversary of the Brexit referendum approaches, the economic implications of the decision to leave the EU are coming into sharper focus. While the immediate recession that many feared did not materialise, the long-term impact has been profound. Households and businesses across the UK are now grappling with the reality of a smaller economy, diminished trade opportunities, and stagnant wages.
The Pound’s Plunge and Its Consequences
In the days following the Brexit vote on 23 June 2016, the British pound experienced significant volatility, ultimately falling by 10% in one of the largest daily drops in its history. Initially, as Nigel Farage prepared to concede defeat, the currency strengthened, only to plummet as early results from key constituencies, such as Sunderland, showed a lead for the Leave campaign.
This devaluation has had enduring effects. The pound has never regained its pre-referendum strength, hovering around $1.34 and €1.15 compared to its value of nearly $1.50 and €1.31 just after the vote. For British consumers, this has meant higher import costs and a noticeable hit to their purchasing power, with inflation soaring in the wake of the currency’s collapse.
Despite the weakening currency typically benefiting exporters by making their products cheaper abroad, uncertainty surrounding trade agreements has stifled any potential gains. Exporters have struggled to navigate the new landscape, leading to a lack of enthusiasm in international markets.
Economic Growth and Investment Stagnation
Contrary to earlier Treasury forecasts predicting an immediate economic downturn, the UK did not plunge into recession as anticipated. However, the Office for Budget Responsibility has since estimated a 4% reduction in national income over the next 15 years, with GDP per capita expected to be 6% to 8% lower than it would have been without Brexit.
Analysis from economists, including Nick Bloom from Stanford University, highlights a marked slowdown in the UK’s economic growth relative to other advanced economies since 2016. “The statistics are really clear: the UK has grown more slowly after Brexit than before,” Bloom noted. This stagnation can be traced back to a significant drop in business investment, which is estimated to be around 18% lower than it would have been had the UK opted to remain in the EU.
In the wake of the vote, political instability and a lack of clarity regarding the future relationship with the EU led businesses to freeze investment plans. John Springford from the Centre for European Reform remarked, “Brexit is more a story of stagnation, and a slow puncture, than of recession and rising unemployment.” This hesitance has resulted in a deterioration of productivity, with workers lacking access to modern equipment and resources.
Employment Trends and the Youth Crisis
Post-referendum employment figures initially appeared promising, with unemployment rates falling to their lowest levels since the 1970s. However, the pandemic-induced disruption has masked deeper issues beneath the surface. Real wage growth has been stagnant, with recent increases barely outpacing inflation. Currently, average real wages remain only £43 higher per week compared to pre-Brexit levels, putting further strain on households.
Moreover, the UK has seen a troubling rise in economic inactivity, particularly among young people. The number of 16- to 24-year-olds not in education, employment, or training (NEET) has surged to over a million, marking the highest rate since 2013. Bloom’s analysis suggests that employment levels are 3% to 4% lower than they would have been under a remain scenario, highlighting the significant challenges facing the labour market.
Changing Public Sentiment on Brexit
As the realities of Brexit continue to unfold, public support for the decision has waned. Recent polling by YouGov indicates that 70% of Britons now favour a closer relationship with the EU, with a majority supporting the idea of rejoining the bloc outright. This shift in sentiment reflects growing dissatisfaction with the long-term consequences of leaving the EU and a desire for renewed engagement with European partners.
Additionally, net migration to the UK has surged post-Brexit, reaching a record high of nearly one million in the year leading up to June 2023. This increase, influenced by external factors such as the war in Ukraine and the end of Covid restrictions, has not aligned with the promises made during the Leave campaign. While net migration from non-EU countries has risen, the number of arrivals from EU nations has decreased, exacerbating staff shortages in key sectors like construction and hospitality.
Why it Matters
The long-term economic repercussions of Brexit are becoming increasingly apparent, with households and businesses alike feeling the financial strain. Stagnant wages, declining investment, and a weakened position in international trade have left the UK grappling with a less prosperous future. As public sentiment shifts towards a desire for closer ties with the EU, the ongoing debate surrounding the consequences of Brexit will remain a central issue in the political landscape, shaping the economic trajectory of the nation for years to come.
