Brexit: a disaster for the UK economy?

On Monday, the AoI Economy Forum will be discussing just how much leaving the EU has damaged trade, production and living standards. Has it really all been gloom and doom?

Barely a week seems to go by without another slice of doom and gloom about the downsides of Brexit. In particular, leaving the EU Single Market and Customs Union has meant that trade between the UK and EU is now more difficult. The Trade and Cooperation Agreement, which finalised Brexit, allowed for tariff-free trade in most goods, but increased customs checks and other forms of bureaucracy have meant that imports and exports have become more difficult.

In those circumstances, it seems obvious that there must have been a negative impact for the UK economy. For example, the National Farmers Union (NFU), in a submission to Parliament, notes: ‘Overall volumes of agri-food are down more than 20% compared to 2019. There was a 0.46% decline in exports to non-EU countries, and a 25.35% decline in exports to the EU.’  

The NFU also notes: ‘Exports of GB agri-products to the EU have faced considerable trade friction since the end of the transition period. Every consignment of product of animal origin (POAO) requires an Export Health Certificate attesting to EU standards. The average cost of an EHC, including processing and veterinary checks, is £200. Smaller exporters, who are more likely to export smaller consignments and therefore lack the economies of scale, will have felt the impact of this cost most strongly.’

More broadly, in February, a report by Goldman Sachs, The Structural and Cyclical Costs of Brexit, argued that the UK had ‘significantly underperformed’ other advanced economies since the EU referendum in 2016 and estimated that the UK grew 5% less over the past eight years than other comparable countries. ‘Taken together, the evidence points to a significant long-run output cost of Brexit.’

Yet if the UK’s overall economic output (GDP) is compared to the most similar countries in Europe, the impact of Brexit looks much smaller, even non-existent, especially compared to other ‘shocks’ like the Covid lockdowns, the war in Ukraine and the spike in energy prices. Indeed, one consultancy, CEBR, argues that the UK has outgrown Germany and Italy since 2016, and growth has been on a par with France.

One problem is that Goldman Sachs and others attempt to use ‘doppelgangers’ to assess the impact of Brexit – in other words, comparing the UK’s performance with the average performance of groups of other countries that are deemed to be similar(ish) to the UK. But no two countries are identical.

For example, the UK’s main source of electricity is from burning gas, the price of which shot up from 2021 onwards. In France, most electricity comes from nuclear, which didn’t have the same price spike. Germany was hugely dependent on Russian gas. Meanwhile, the US become a massive exporter of oil and gas as production rose and supplies from other countries were restricted. Comparing countries with different policies and circumstances seems to be of limited value.

To try to untangle these different issues, the Academy of Ideas Economy Forum is discussing the economic impact of Brexit next Monday, 8 April, from 7pm (UK time). The event is online, via Zoom, and free to join. The discussion will be introduced by economist and trade expert Catherine McBride OBE, a fellow of the Centre for Brexit Policy and a regular contributor on the websites Briefings for Britain and GlobalBritain.

To find out more and buy tickets, visit the Academy of Ideas event page.

Image: RayanS93 via Wikimedia Commons.