The UK is lagging behind its peers in growth, investment and trade
Many economists say Brexit is contributing to underperformance
Polls show that Britons are increasingly regretting leaving the EU
Pro-Brexit economist Lyons: Britain’s problems have long roots
By Andy Bruce
LONDON, January 30 (Reuters) – Three years after leaving the European Union, Britain has yet to benefit from the Brexit dividend promised for its economy as it lags behind its peers on multiple fronts, including trade and investment .
Britain left the EU on January 31, 2020, but remained in the bloc’s internal market and customs union for another 11 months.
On that day, then-Prime Minister Boris Johnson said that the country could finally live up to its potential and that he hoped that confidence would grow every month.
So far, the opposite has happened, with a range of indicators underperforming compared to other economies.
Opinion polls show that there are more and more Britons who regret leaving the EU than those who don’t. A survey published Monday by news website UnHerd found that this was now the case in all but three of the 632 parliamentary constituencies surveyed.
The government, led by Brexit-supporting Prime Minister Rishi Sunak, says Britain is prospering with newly won freedoms.
Last week, Treasury Secretary Jeremy Hunt challenged talk of decline, saying Brexit offered a brighter future with scope for measures that will attract investment in areas such as the green economy and technology.
Many economists say leaving the EU is not the sole cause of Britain’s woes – the country was hit hard by the coronavirus pandemic – but it is one factor that may help explain its recent underperformance.
“It’s been more than a slow burn. It’s been a serious downturn in economic performance,” said John Springford, deputy director of the Center for European Reform think tank.
“If you put up trade, investment and migration barriers with your largest trading partner (EU), you take quite a hit to trade volumes, investment and GDP,” he said, pointing to a set of dismal economic data.
Britain was the only advanced economy of the Group of Seven to regain its pre-pandemic size of late 2019 at the end of September last year, the most recent period covered by data.
Springford estimated that Brexit has reduced Britain’s economic output – compared to what it would have been without leaving the EU – by about 5.5% from mid-2022, based on a “double” model in which an algorithm selects countries whose economic performance closely matched that of pre-Brexit Britain.
The government’s own forecasting body, the Office for Budget Responsibility, and the Bank of England also assess there is a net long-term cost of leaving the EU.
Some economists disagree with the consensus.
Brexit-supporting economist Gerard Lyons, an advisor to online wealth management platform NetWealth and who advised Boris Johnson during his years as mayor of London, said it was wrong to blame Britain’s troubles on Brexit.
“Our problems predate Brexit,” Lyons said, pointing to Britain’s chronically low investment rates. “Reaping the benefits of Brexit depends very much on delivering… a growth plan – how to use your post-Brexit levers.”
He criticized the lookalike analysis method because some of the smaller countries selected by the models were inappropriate points of comparison for a large economy like Britain.
Trade and investment data point to other Brexit issues.
Exports, especially of goods, have been disappointing for the past three years, despite high expectations of a “Global Britain” recovery of the economy after Brexit.
Total exports, including services, have grown less than any other G7 country since late 2019.
Boris Glass, senior economist at rating agency S&P Global, said increased bureaucracy in trade between the UK and the EU has hurt the competitiveness of smaller UK manufacturers in particular, as they have fewer resources to deal with it.
“It’s worth noting that the UK has more small exporters than, say, France or Germany, so they’re at a disadvantage in that respect,” said Glass. “If you are an exporter with 20 employees, filling out these forms is very costly. Some of them can’t compete at all.”
Business investment has also grown less than in the United States, France or Germany since the June 2016 Brexit referendum, according to a Reuters analysis of data from the Organization for Economic Co-operation and Development.
Some pro-Brexit economists say such statistics overlook the fact that UK business investment in the years leading up to mid-2016 was unusually strong and likely to slow. But business surveys overwhelmingly show that Brexit is a factor behind the weak investment in recent years.
“It’s worrying that there doesn’t seem to be any uptick in investment. And I think we need to see that uptick to recover sustainably from the Brexit shock,” Springford said.
Britain still has higher employment and lower unemployment than most EU countries, but there are some signs that Brexit may also have affected the labor market.
Business groups want the government to relax its post-Brexit immigration rules as companies struggle to find workers, something the BoE fears is fueling inflationary pressures.
And unlike most of its G7 peers, Britain’s employment rate has yet to recover to pre-pandemic levels.
(Reporting by Andy Bruce Editing by William Schomberg and Mark Heinrich)