Economy & Trade

Brexit is not the only cause, but it has made the cost-of-living crisis worse than it needs to be. 

The government’s own Office Budget Responsibility (OBR) says Brexit will cut UK productivity over the next few years by 4%, which makes everyone poorer. 

The Centre for European Reform’s economic modelling suggests that the UK economy is already 5.2% smaller than it would be if Brexit had not happened. A smaller economy means higher levels of taxes are needed to fund public services. 

The Resolution Foundation estimates that Brexit will have cost the average two-worker family almost £1000 a year by 2030.  

The London School of Economics says Brexit has increased food prices by around six per cent. 

This is no surprise: 

  • Brexit makes trade harder – the OBR estimates it will reduce UK trade by 15% - and increases red tape, which adds to administration costs for importers; 
  • Delays at ports also increase costs, because time is money 
  • Brexit has also led to severe labour shortages in some sectors, such as agriculture, which also leads to lower output and higher prices. 

The Centre for European Reform (CER) estimates that UK trade in goods has fallen by 13.6% as a result of Brexit and that investment in the UK from abroad is 13.7 per cent lower. 

The trade deals done by the UK government since Brexit will do little or nothing to offset the disastrous effects of the fall in trade with the EU – the government’s own estimates of the economic benefits of the deal with Australia is that it will increase UK GDP by less than 0.1 per cent by 2035.

The CER estimates that the damage from Brexit has already reached over 5 per cent of GDP. 

These deals could also in effect lower the high EU standards that before Brexit applied to imports to the UK – products like meat pumped with hormones or produced to animal welfare standards lower than our own could soon be on our shelves.  

Unfair competition from farmers on the other side of the world could put British farmers out of business. 

Boris Johnson’s hard Brexit, endorsed by Rishi Sunak, leaves every UK enterprise that takes part in cross-border trade - as an exporter and importer or both - at a disadvantage compared to its EU competitors. Put starkly, it is always easier for companies from Leipzig, Lisbon or Lille to work with each other than it is for a company from Liverpool to work with any of them.   

That needs to change, and the European Movement UK believes nothing should be off the table to achieve that – including membership of the customs union and the single market. 

All countries have been buffeted by the pandemic and by energy and food price shocks caused by the Russian invasion of Ukraine.  

But the UK is the only one to have given itself a further massive shock through Brexit, which the American economist Adam Posen has described as “the UK declaring a trade war on itself.” In effect Brexit has made every UK company less competitive relative to its counterparts across the EU.  

It is no coincidence that the UK is the only major economy not to have recovered all the ground it lost during the pandemic – our economy remains 0.4% smaller than when the pandemic struck.   

The pound (at 7 November 2022) is about 30 % lower against the dollar and 12% lower against the euro than it was before the referendum in June 2016. All this is making imports, including energy and food, even more expensive. A further fall could put the viability of the whole UK economy at risk.

UK annual inflation in September 2022 was 10.1 %, slightly lower than the EU overall, but most economists think the UK figure would be lower without the effects of Brexit described above. High inflation in the UK is also combined with fast rising mortgage costs and even worse 2023 growth forecasts (0.3% - IMF, and likely to be revised down) than for the euro area (0.5%). This is a lethal combination for standards of living. Real average household disposable income is forecast by the Resolution Foundation to fall by 4% in 2022-23 and 7% (11% for the poorest fifth) in 2023-24 

A reduction in economic activity caused by Brexit is hitting the government’s tax revenues and narrowing its options for dealing with the crisis. Furthermore, the unfunded tax cuts proposed by Liz Truss’s government to ‘seize the opportunities of Brexit’, although now reversed by Rishi Sunak and Jeremy Hunt, have further undermined confidence and the UK’s global position, necessitating a new round of austerity measures (tax rises and spending cuts) that will further hit everyone in the pocket.

The public understands that Brexit has made the economic crisis worse – over two-thirds of voters, including 57% of leave voters told pollsters earlier this year that Brexit had made the cost of living higher. More generally, recent YouGov polls consistently show a clear majority of around 52% believing the UK was wrong to leave the EU, with only 35% believing the decision was right.