Nearly all economists agree that Brexit has left the UK poorer, although the full extent of the impact will remain unknown for many years. The recession triggered by Covid-19 has made separating the effects of the pandemic and those of Brexit harder.
The European Commission estimates that the UK’s departure from the EU will cost the former 2.25 per cent of its GDP – equivalent to £40bn in lost economic output – by 2022. The EU, by contrast, would only lose around 0.5 per cent of its GDP.
A different estimate, this time from the Office for Budget Responsibility (OBR), suggests that productivity in the UK will fall by 4 per cent owing to Brexit, with two-fifths of that impact already realised. Brexit alone will reduce growth in the first quarter of this year by 0.5 per cent, the OBR predicted.
Pre-pandemic analysis by the Centre for Economic Policy Research (CEPR) suggested that growth was around 2.1 per cent lower than previously expected by the end of the first quarter of 2019. This amounts to around £350m each week, which, coincidentally, is the same amount the Leave campaign misleadingly suggested the UK would save in EU budget contributions and use to fund the NHS.
Brexit has also driven inflation upwards. The OBR expects trade disruption to increase the pressure on British importers, with higher costs being passed on to consumers (a 0.25 per cent increase by the end of this year). Separate analysis by the CEPR found that Brexit had already led to a rise in inflation of 2.9 per cent by June 2018, which cost the average household £870 a year, the equivalent of 1.4 more weeks of work.
The consequences of Brexit are clearest in trade volumes. UK exports to the EU fell by 40.7 per cent this January compared to the previous month, according to the Office for National Statistics, the largest drop since records began in 1997. Non-EU exports, meanwhile, have remained largely unchanged.
Imports from EU countries have fallen by around 28.8 per cent, a larger decrease than for imports from the rest of the world. Imports were likely less affected than exports due to the EU imposing harsher border checks for goods than the UK.
Figures from other countries confirm this trend. UK exports to Germany fell by more than half (56 per cent) in January 2021 compared to the previous year, with imports also falling by a third (29 per cent).
While this unprecedented drop can be partially attributed to stockpiling in December and pandemic-related disruption, the fact non-EU trade has been significantly less affected indicates that Brexit was the primary factor.
A survey of UK businesses found that half of all respondents (49.9 per cent) identified Brexit as the greatest export challenge, with an additional third (33.4 per cent) citing both Brexit and Covid-19. Just over one in ten (11.2 per cent) identified coronavirus as the sole cause with the reminder (5.5 per cent) choosing another option or being unsure.
Trade has been a particular problem in Northern Ireland, with 44 per cent of businesses saying they experienced some negative impact from the new trading rules and one in four saying the impact was significant. Three out of four firms say they’re also experiencing issues with suppliers in Great Britain.
As businesses adjust to the additional paperwork and longer delivery times, and the economy returns to its pre-pandemic level, trade will likely partially recover. But it is unlikely that the UK’s trade with its largest partner will return to its previous level. One in five business leaders said their firms stopped trading with the EU in January, according to research by the Institute of Directors. Half of those said this decision is permanent.
Foreign Secretary Dominic Raab has dismissed Brexit concerns, urging businesses to take a 10-year view and focus on long-term growth opportunities from emerging markets. But for firms struggling to recover from the worst UK recession in 300 years, and the effects of EU withdrawal, that offers little reassurance.