UK lags peers in growth, investment and trade
Many economists say Brexit is contributing to underperformance
Polls show Britons increasingly regret leaving the EU
Lyons, pro-Brexit economist: UK problems have long roots
By Andy Bruce
LONDON, Jan 30 (Reuters) – Three years after leaving the European Union, Britain has yet to benefit from the promised Brexit dividend for its economy, as it lags behind its peers on several fronts, including trade and investment.
Britain left the EU on January 31, 2020, but remained in the bloc’s single market and customs union for a further 11 months.
That day, then-Prime Minister Boris Johnson said the country could finally realize its potential and that he hoped its confidence would grow in confidence as the months went by.
So far, the opposite has happened, with a range of indicators showing underperformance relative to other economies.
Opinion polls show that more and more Britons regret leaving the EU than those who do not. A survey published Monday by the UnHerd news site showed this was now the case in all but three of the 632 parliamentary constituencies surveyed.
The government, led by pro-Brexit Prime Minister Rishi Sunak, says Britain is thriving on the back of freedoms.
Finance Minister Jeremy Hunt last week challenged the rhetoric of decline and said Brexit offered a brighter future with room for measures that will attract investment in areas such as the green economy and technology .
Many economists say leaving the EU isn’t the only cause of Britain’s woes – the country has been hit hard by the coronavirus pandemic – but it’s a factor that may help explain the under- recent performance.
“It’s been more than a slow burn. It’s been a serious reduction in economic performance,” said John Springford, deputy director of the Center for European Reform think tank.
“If you impose barriers to trade, investment and migration with your biggest trading partner (the EU), then you are going to have a pretty big impact on trade volumes, investment and GDP” , he said, pointing to a series of dismal economic data.
Britain was the only advanced economy in the Group of Seven to have yet to regain its pre-pandemic size from late 2019 to the end of September last year, the most recent period covered by the data.
Springford estimated that Brexit had reduced Britain’s economic output – compared to what it would have been without leaving the EU – by around 5.5% by mid-2022, based on a “doppelganger” model in which an algorithm selects countries whose economic performance closely matched pre-Brexit Britain.
The government’s forecasting body, the Office for Budget Responsibility, and the Bank of England also believe leaving the EU has a long-term net cost.
Some economists disagree with the consensus.
Pro-Brexit economist Gerard Lyons, an adviser 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 problems on Brexit.
“Our problems predate Brexit,” Lyons said, pointing to Britain’s chronically low investment rates. “Achieving the benefits of Brexit largely depends on achieving…a plan for growth – how you can use your leverage after Brexit.”
He criticized the method of analyzing the duplicates on the grounds that some small countries selected by the models were inappropriate comparators for a large economy like Britain.
Trade and investment data point to further Brexit issues.
Exports, particularly of goods, have disappointed over the past three years – despite high hopes of a “Global Britain” rebalancing of the economy after Brexit.
Total exports, including services, have grown less than any other G7 country since the end of 2019.
Boris Glass, senior economist at ratings agency S&P Global, said increased red tape in UK-EU trade had hurt the competitiveness of smaller UK manufacturers, particularly as they have fewer resources to deal with it.
“It should be noted that the UK has more small exporters than, say, France or Germany, so they are at a disadvantage in this regard,” Glass said. “If you are an exporter with 20 employees, the burden of filling out these forms is very expensive. Some of them cannot compete at all.”
Business investment has also grown less since the June 2016 Brexit referendum than in the United States, France or Germany, according to a Reuters analysis of data from the Organization for Economic Co-operation and Development.
Some pro-Brexit economists say these statistics ignore the fact that UK business investment was exceptionally strong in the years leading up to mid-2016 and was expected to slow. But business survey data overwhelmingly point to Brexit as a factor behind weak investment in recent years.
“It’s worrying that there doesn’t seem to be a recovery in investment. And I think for us to recover sustainably from the shock of Brexit, we need to see that increase,” Springford said.
Britain still has higher employment rates and lower unemployment than most EU countries, but there are signs that Brexit may have had an impact on the labor market as well.
Business groups want the government to ease its post-Brexit immigration rules as businesses struggle to find workers, which the BoE fears will fuel 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)