One ritual of the economic news cycle is the release of the International Monetary Fund (IMF)’s forecasts for the UK economy. An update was published today, coinciding with the three-year anniversary of the UK’s exit from the European Union on 31 January 2019.
The coincidence is unfortunate for fans of Brexit because the forecast makes for gloomy reading. The IMF predicts that the UK economy will shrink by 0.6 per cent in 2023, the worst performance out of the report 30 covered, and even this is a somewhat more optimistic view than that put forward by the Bank of England, which expects the economy to shrink by almost 2 per cent by the end of this year.
Standing back from 2023, the Brexit anniversary sees the UK economy as part of the unprecedented stagnation in growth since the global financial crisis of 2008.
The government and the opposition both cite IMF figures when it suits them. In November, Jeremy Hunt noted the its managing director’s approval of his Autumn Statement. Today, the shadow chancellor Rachel Reeves flagged on Twitter the IMF forecast’s unflattering comparison of the UK with other G7 countries. Neither mentioned the contribution of Brexit to the state Britain is in.
The UK economy’s troubles aren’t derived solely from Brexit. Covid-19, austerity, the invasion of Ukraine by Russia, the legacy of the financial crisis are all doing their work. But Brexit is a part of the explanation. Before Brexit, the consensus view from economists was that a deal like the one we struck with the EU would lower long-term GDP per head by about 4 per cent. And institutions such as the Office for Budget Responsibility and the Bank of England have largely stuck to these estimates. John Springford of the Centre for Economic Reform published research in December that pointed to the hit Brexit made on the UK’s trade and investment, and suggested Britain’s GDP is up to 5.5 per cent lower than it otherwise would have been.
This deficit is considerably larger than estimated previously, but then those older projections were trying to capture the narrow effects of raising trade barriers with the EU. Subsequent performance reflects how Brexit has been carried out. Both the Theresa May and Boris Johnson governments weaponised the threat of a no-deal Brexit to try and secure concessions from the EU (remember “No deal is better than a bad deal”?), generating uncertainty for businesses. Uncertainty persists.
One source is the Northern Ireland protocol (NIP), which polices the country’s special place in the EU single market for goods. Talks with the EU to reform or find a different way to implement the NIP seem to be warming up, but they could still fail (not least because of objections from Unionists in Northern Ireland) and the Trade and Cooperation Agreement – the Brexit deal – is terminated. On top of that, businesses face regulatory chaos due to the passage of the Retained EU Law Bill through parliament, which seeks to revoke all legacy legislation carried over from EU membership, presenting a ludicrously compressed timetable for civil servants to craft replacements.
In an exchange with Patience Wheatcroft in Prospect, the Brexit-supporting commentator Iain Martin identified one of the benefits of leaving the EU as the “Brexit state of mind”. This might in fact be one of its largest costs, and why lived Brexit has been worse than merely throwing sand in the wheels of trade. This state of mind put blind faith in the political benefits of the project, was determined to reject the consensus views of the economics and policy establishment, and encouraged an appetite to set aside the evidence in selling proposals through the media to Brexit’s core voters.
This state of mind brought us not just Brexit, but the debacle of the Truss-Kwarteng premiership and the dash for growth with unfunded tax cuts. The Brexit state of mind also produced empty and grandiose policy-projects-as-slogans like “build back better” and “levelling up”.
A key determinant in whether we can reverse this 15-year stagnation in growth is if the Brexit state of mind can be cast off. That would allow us to talk plainly about the economic problems and how they can be solved. If that happens, some or all of Brexit could be reversed.
[See also: Britain has never faced decline like this before]