Ten years on from the Brexit referendum, the economic landscape of the United Kingdom is a stark reminder of the costs and consequences of leaving the European Union. The narrative of 'Project Fear' has proven to be a chillingly accurate prophecy, with the country facing a series of economic challenges that have left it poorer and less competitive. The pound's dramatic post-referendum fall, the slowdown in growth, and the impact on trade and investment paint a picture of a nation struggling to adapt to a new reality. But what does this mean for the future of the UK, and what lessons can we learn from this tumultuous period?
The pound's journey since the referendum is a cautionary tale. On the night of the vote, as the initial results suggested a Leave victory, the currency gained strength. However, the early Leave victories in key locations, such as Sunderland, triggered a 10% plunge, the biggest one-day fall in its history. This dramatic swing in value had far-reaching consequences, driving up the cost of importing goods and triggering an inflation shock. The public finances took a hit, and households across the country felt the financial pain. The pound has never returned to its pre-Brexit level, and for British holidaymakers, the cost of travel has increased significantly.
The Treasury's forecasts, ordered by George Osborne, were not far off the mark. The immediate recession predicted did not happen, but the long-term outlook was more accurate than many realized. The economy is significantly smaller than it would have been had the UK remained in the EU. Charlie Bean, a former Bank of England deputy governor, noted that the assessment of the broad long-run was in the right ballpark. The UK is poorer than it otherwise would have been, and the impact on trade, business investment, and productivity growth has been notable.
The slowdown in UK growth is a key indicator of the Brexit impact. The Office for Budget Responsibility estimates a 4% hit to national income over a 15-year period. Nick Bloom, a leading British economist, found that UK GDP per head is between 6% and 8% lower than it would have been without Brexit. The statistics are clear: the UK has grown more slowly after Brexit than before. This is not just a statistical observation but a reflection of the broader economic challenges the country faces.
Trade has suffered from increased border friction, with the EU remaining the UK's largest trading partner. Since the end of the EU transition period, growth in UK goods exports has slowed relative to the G7. Exporters, particularly those in goods, face more red tape and border delays, impacting their ability to compete. This is akin to a shop moving from the center of town to the outskirts, making it harder for customers to access and reducing demand.
Uncertainty has been a significant factor in the economic challenges. After the shock result, the lack of a clear plan from the government and leave campaigners led to years of infighting. Businesses froze their investment plans, and the investment strike continued through to 2021-22. This has had a lasting impact on productivity, with workers not having the best equipment and existing capital deteriorating. Brexit is more a story of stagnation and a slow puncture than of recession and rising unemployment.
Employment has also suffered, with unemployment falling after the referendum but rising sharply during the pandemic. Wage growth has stagnated, and the UK emerged as the worst-performing country in the G7 for the pace of its recovery in workforce participation. Young people have borne the brunt of weaker participation rates, with the number of 16- to 24-year-olds not in education, employment, or training (Neet) reaching over a million.
Public support for Brexit has steadily fallen since the referendum, with polling showing a majority now supports a closer relationship with the EU without rejoining the bloc. The war in Ukraine and pent-up demand for migration have contributed to a surge in net immigration, but changes to migration rules after Brexit also played a role. Employers have struggled with staff shortages, particularly in construction, hospitality, and manufacturing, as the loss of previously readily available EU workers has had a significant impact.
In conclusion, the economic consequences of Brexit are far-reaching and complex. The pound's fall, the slowdown in growth, and the impact on trade and investment paint a picture of a nation struggling to adapt to a new reality. The UK is poorer than it otherwise would have been, and the lessons from this tumultuous period are clear. The country must now navigate the challenges of a post-Brexit world, finding new ways to compete and thrive in a rapidly changing global economy. The future of the UK is at a crossroads, and the decisions made in the coming years will shape its economic destiny.
