Keir Starmer is hosting the first summit in the UK after Brexit aimed at renewing relationships with the EU to enhance trade and stimulate the economy.
Almost ten years post-referendum and five years since the UK officially left the EU, there’s a growing sense of disappointment among the public regarding the Brexit deal previously made by Boris Johnson’s government. This sentiment is prevalent among both voters and the general population.
Here are five charts that illustrate the economic context surrounding this summit.
Support for Closer Relationships
Since the 2016 referendum, support for Brexit has dropped, going from 52% to 48% in favor of leaving the EU. A YouGov poll from earlier this year found that only 30% of British citizens consider Brexit the right decision, while 55% disagree, showing a preference for maintaining strong ties with Brussels.
More than 60% of respondents (62%) believe that Brexit’s consequences have worsened over time. Many think that leaving the EU has adversely affected the economy, impacting trade and living costs.
Determining the specific economic effects of Brexit is challenging, especially with other significant global developments such as the Covid-19 pandemic and the war in Ukraine. While some economists forewarned of impending disasters before the 2016 vote, others projected a flourishing “global UK.” The situation, however, appears to be more nuanced, with mounting evidence of economic strain.
The UK’s trade is projected to experience a 15% decline, and national income may see a 4% decrease over the long run, according to the independent forecaster, the Budget Responsibility Office (OBR).
Negative Trade Shocks
Brexit has led to trade barriers that have negatively affected British exports. While negotiations could potentially expand trade opportunities, as the EU is still the UK’s largest trading partner, the figures are concerning. In 2024, UK exports to the EU amounted to £358 million, about 41% of total UK exports, while imports reached £454 billion, making up 51% of the total.
Since the end of the EU transition period on December 31, 2020, growth in UK goods exports to the G7 has sharply decreased. By 2024, goods exports to the EU are projected to be 18% lower than in 2019.
On a brighter note, service exports, which are a significant strength for the UK, have performed well. The OBR suggests that while goods transactions are struggling due to additional friction from Brexit, the UK depends less on EU markets for service exports.
Small businesses, however, face challenges with the post-Brexit regulations that add layers of complexity. HMRC estimates indicate that companies now need four times as many customs forms as before, leading to an additional cost of about £7.5 billion annually.
Business Uncertainty
The unforeseen outcomes of Brexit have left the government without a clear strategy, leading to years of uncertainty for businesses. As a result, many companies have paused their investment plans.
Investments have stagnated against a backdrop of unclear future relations between the UK and the EU, making it difficult to justify spending on vital productivity-enhancing resources. The National Institute for Economic and Social Research (NIESR) estimates that business investment in 2023 is 13% lower than initial predictions, though some recovery is expected, dropping to an 8% deficit by 2035, but this would still reflect a GDP loss of 5-6% per capita.
Increased Migration
Following Brexit, net migration to the UK surged to record highs by June 2023, despite previous promises regarding immigration control from the conservative government.
This increase can be attributed to multiple factors, such as the war in Ukraine, the newly established post-Brexit immigration system, and rising demand for research-related migration following the pandemic.
Interestingly, nearly 90% of migrants are arriving from outside the EU, although migration from EU countries has seen a decline. This shift has contributed to worker shortages in sectors like construction and hospitality.
Does It Help at All?
Labour has made commitments in its manifesto to foster closer ties with the EU, though it has also established specific red lines to avoid reopening divisive Brexit discussions. This could limit the scope of discussions at the London Summit.
James Smith from the Resolution Foundation mentioned that potential agreements covering defense, safety, fishing rights, and food standards could be beneficial to the UK’s economy, although he cautioned that strict limitations may hinder sizable gains.
Estimates from John Springford of the Centre for European Reform suggest that demands from the UK and EU could lead to a GDP boost of between 0.3% to 0.7%, which is pales in comparison to the projected 4% decline indicated by the OBR.
Despite the doubts, many economists argue that resetting relations is necessary, particularly amid ongoing global trade conflicts. Stephen Millard, Associate Director of NIESR, pointed out that trade deals with the EU are much more likely to influence the economy than agreements with nations like India or the US.
Ultimately, the success of this endeavor will rely on the specifics of each trade agreement, indicating a positive move towards closer integration with neighboring countries, which may help boost GDP and overall finance stability.
