The impact of Brexit on the UK economy
openaccessgovernment.org/article/the-impact-of-brexit-on-the-uk-economy/168344
18 October 2023
Image: © luaeva | iStock
Sarah Hall, Professor of Economic Geography at the University of
Nottingham, charts the impact of Brexit on the UK economy and
identifies opportunities for future developments
Since the UK left the EU at the end of the Brexit transition period, the terms of UK-EU trade
have been governed through the EU-UK Trade and Cooperation Agreement (TCA). It is still
relatively early in implementing the TCA to assess its economic impacts on the UK economy
fully. Assessing the implications of the TCA is also complicated because it has been
implemented in the wake of the COVID-19 pandemic and the Russian invasion of Ukraine.
However, there is growing interest, both politically and publicly in understanding the impacts
of the TCA particularly given the ongoing sluggish UK economic growth rates and
low productivity since the 2007-08 financial crisis.
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Untangling the economic impacts of COVID-19 and the war in Ukraine from Brexit is critical if
the economic effects of the UK’s new trading arrangements with the EU and the rest of the
world are to be fully understood.
More research and data are being conducted across various disciplines, including
economics, sociology, legal studies and geography, that aim to precisely do that. Examining
some of these research highlights provides a valuable starting point for beginning to
understand the impact of Brexit on the UK economy.
Impacts of Brexit on the UK economy predictions
Before examining the real-world impacts of the TCA, it is helpful to step back and set out
what economists anticipated the impacts of Brexit on the UK economy to be. This is
important because, during the period of EU membership since 1973, UK economic growth
and GDP per capita grew as the economy developed greater trade and capital flows with the
EU alongside greater migration.
This gave rise to arguments from leading economists that reduced access to the EU’s single
market, alongside uncertainty, which would likely reduce international investment into the UK,
would likely lead to lower wages, a lower sterling rate and the need for higher taxes or
reduced investment in public spending.
Crucially, however, the economic benefits of EU single market membership were not
distributed evenly across the UK. Whilst London and the South-East benefited from marked
increases in financial and related professional services activity in particular, provincial
regions did not see the same GDP growth. As such, the period of UK EU membership did
not reverse the long-term pattern of marked regional differences in economic performance
across the UK (Hall 2009).
Research has argued that voters living in places that had not benefitted from rising GDP at
the national level, which were also often the places that were most impacted by austerity
policies in the 2000s were influenced by these experiences and registered this in part
through a Leave vote.
The role of economic experts
However, the role of economic experts, and forecasting in particular, has been the subject of
continued debate and criticism since the Brexit referendum in 2016. In part, this stems from
early initial forecasts of the economic impacts of Brexit that predicted a negative economic
impact that would be felt relatively quickly, driven by negative impacts on financial markets,
consumer and business confidence.
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The most negative elements of these initial forecasts did not materialise by enlarge. On the
one hand, the pound did fall mainly as expected, but the predicted house price fall did not
materialise. Similarly, the labour market remained relatively strong, with a slight fall in
unemployment.
However, the longer-term predictions made during the referendum, particularly concerning
the impacts on trade and migration, have been more accurate. The nature of the TCA itself
needs to be set out to understand these impacts. Broadly, the TCA does more to liberalise
goods trade between the UK and the EU than it does for services trade.
This is significant because services have historically been a strength for the UK economy
whilst goods have dominated the EU. The TCA provides zero tariffs and quotas on goods but
very little around the mutual recognition of regulatory standards or to support labour mobility,
which is essential in services.
In terms of goods trade, following the implementation of the TCA, research shows a 25%
decrease in UK imports from the EU compared to imports from the rest of the world. Their
research suggests a smaller and more temporary decrease in UK exports to the EU.
However, they report a considerable reduction in the number of trade relationships between
UK exports and their EU counterparts. This suggests that smaller firms may have been more
likely to decrease their exporting activity to the EU than larger firms, who may have had more
capacity to address any additional costs they incurred with exporting to the EU.
Regarding services trade, data quality is not as strong as for goods. In services, there is
evidence of a decline in UK services exports to the EU in the immediate period post-
referendum, before the implementation of the TCA. This has been placed at around 6% in
2019. In terms of financial services in particular, which are especially important in the UK,
there is evidence that approximately 10% of total banking assets have moved to the EU, with
a smaller proportion of jobs relocating.
Early economic impacts of Brexit on the UK economy
Taken together, this analysis suggests that the early economic impacts of Brexit on the UK
economy do not neatly follow the estimates made by economists immediately following the
referendum.
There have been negative impacts on trade, which can be largely separated from the effects
of COVID-19 and the War on Ukraine. Crucially, the devil is in the detail, with such changes
varying significantly by economic sector and location in the UK. Whilst Brexit is only in its
early stages economically, it is clear that its impacts are sectorally and regionally variegated.
Please Note: This is a Commercial Profile
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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives
4.0 International License.
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