By Eva Koch
Over three years have passed since the United Kingdom left the European Union, causing serious implications for the country’s sovereignty, economy and society. That a change like this would have consequences was clear from the beginning; however, the economic consequences might have been underestimated. To discuss the shortcomings of Brexit, some of the UK’s most prominent politicians, from all sides, gathered to have a ‘secret’ talk on how to move forward.
© Illustration by Gary Waters/Ikon Images
The Beginning of Brexit
On 23 June 2016, the UK voted in favour of leaving the European Union, an exit which would come into effect almost four years later. The reasons that 52 per cent of the population voted for Brexit were various, with many stating that sovereignty, nationalism and economic opportunities played a role. On 31 December 2020, the exit was definitive.
To prevent a ‘hard Brexit’, which would have resulted in a no-deal between the UK and EU, both parties agreed on a last-minute arrangement, bringing the negotiations to an end. Since then, the British economy has been suffering.
High inflation and currency devaluations are issues that are currently arising in many parts of the world due to the Russo-Ukrainian War and the associated increasing gas prices. However, compared to other countries of the G7, such as Germany and the US, the UK is performing considerably worse. To illustrate: it is the only G7 country whose economy is shrinking, inflation was at almost nine per cent in January 2023 and the UK’s GDP is still lower than it was pre-pandemic.
The ‘Secret’ Meeting
On 9 February, a two-day meeting was held, consisting of the country’s most senior cross-party politicians from both sides of the Brexit Debate. According to documents published by the Observer, the summit was titled “How can we make Brexit work better with our neighbours in Europe?”. Discussions dealt with the current consequences of the leave and their implications for the future, including talks on the economic downsides of trade and labour in the country.
Many news outlets described the meeting as mostly focusing on the failures of Brexit and, even the attending politicians, acknowledged that the exit has damaged the country's growth potential. Despite the impression of regret this confrontation gave, the documents clarified that the UK will not re-join the EU but, instead, focus on moving on and working on improving the EU-UK trade deal.
The Impact on International Trade
One of the biggest impacts of Brexit on the UK economy can be witnessed in the country’s international trade. Even though the UK and EU have signed a trade agreement in December 2020, which grants zero tariffs and quotas for most trading sectors, a fall in exports and imports between both parties has been reported. Brexit furthermore entailed leaving the European Single Market, which caused the re-introduction of border formalities and regulations and now hinders and delays shipment thus making trading more difficult for the UK.
According to Eurostat, exports to the EU fell by almost fourteen per cent from 2020 to 2021 and by almost 30 per cent when compared to 2019. Imports from the EU also went down from 2019 to 2020 but have ever since been rather stagnant.
Some argue that those changes were caused by the pandemic rather than Brexit, which is partially true. However, when looking at EU countries, a clear difference is visible: in 2020, German exports declined by nine per cent compared to 2019. In the following year, it, however, bounced back, increasing by more than fourteen per cent. Similarly, French exports increased by seventeen per cent from 2020 to 2021.
Despite Boris Johnson’s promises for new trading opportunities with global partners after Brexit, international trade beyond the EU's borders has also been suffering. While imports from non-EU countries went up in the post-transition period, exports to such countries decreased, even post-covid.
The Shortfall of EU Labour
The UK is also currently facing labour issues with a serious shortage of workers. Even though immigration was one of the main reasons for many citizens to vote for leaving the EU, it is now turning into a negative consequence for the British economy. A considerable number of jobs cannot be filled by local citizens and thus create a shortage in labour, tampering with economic activity.
Although EU citizens have the right to a special UK visa, the new borders harden EU nationals willing to work in the UK. Particularly this causes labour shortages in many sectors, especially in the low-skilled economy. It currently leaves over 300,000 jobs vacant, which could have been, to a considerable extent, filled by EU citizens.
At the beginning of 2020, data showed that Brexit led to an increase in the immigration of non-EU nationals. This does, however, not seem to be enough to compensate for the lack of workers from EU countries. With the already serious global cost of living crisis, the shortage of workers creates further risks for the country’s economy as it hinders important economic growth.
The Fall of the Pound
Besides trade, Brexit also caused the British currency to significantly lose value. The pound decreased by a fifth of its value compared to numbers before the referendum and did not only start to drop during the pandemic but decreased dramatically in 2016.
This is explained by the increase in the cost of goods and services for consumers which, again, relates to trade and the associated supply chain, which currently suffers from import constraints.
Additionally, the lack of labour has an impact on the citizens purchasing power. In the current situation, the demand for labour exceeds the supply by employees. Therefore, companies need to offer higher wages to make job vacancies more attractive. This leads to higher inflation and thus a lower purchasing power.
Conclusion
The exit from the European Union has left the United Kingdom with several implications, especially for the country’s economic situation. The UK has underperformed, also when considering other circumstances such as the Ukraine War and the covid-pandemic.
Instead of economic growth, the country is facing a recession, which creates a difficult task for politicians. Even though officials say that a re-entrance into the Union is not an option, the country’s politicians have found themselves with the difficult task of creating economic stability in the country.
Sources: The Guardian, Eurostat, Office for National Statistics, CNN, Forbes, Independent
Written by Eva Koch
March 2023
Comments