Brexit is leaving a hole of almost £100bn in annual UK exports, making Britain’s economy worse off than if it had remained in the European Union, new analysis has claimed.
Businesses that make an array of products including sporting goods, children’s toys, jewellery and medical equipment have struggled the most with border costs imposed by the UK’s decision to leave the EU, leading to 30 per cent less trade between 2020 and 2023 than if Britain had stayed in the trading bloc.
Since leaving the single market, Britain’s export growth has been sluggish behind other advanced economies, leading to missed growth in goods and services exports of around £23bn quarterly, the analysis reveals.
John Springford, an associate fellow at the Centre for European Reform (CER), a pro-EU think tank, said his analysis “shows that Brexit is leading to permanent depression to trade between the UK and the EU”.
“If Brexit hadn’t happened, and we can visit the universe where Remain won the referendum, then trade and [the economy] would be significantly higher,” he said.
Mr Springford dismissed arguments from Brexiteers that further trade deals with countries outside of the EU could make up the economic shortfall.
“That argument violates one of the few absolute certainties we have in international economics, which is that trade with nearby large economies is always going to be much bigger than trade with distant smaller economies,” he said.
Economist Thomas Sampson, an associate professor at the London School of Economics (LSE), said Brexit had been a “drag on the economy” and described Mr Springford as a “respected analyst”. Mr Sampson said that while there was nuance in how to interpret the numbers, you “cannot question the quality of his work”.
The gloomy data supports arguments from other economists that leaving the EU has damaged the UK’s financial health and not freed up the £350m a week for the NHS that Boris Johnson and the Leave campaign promised.
However, the most pessimistic predictions that Brexit would spark economic armageddon and leave Britons struggling for their food supply have not come to pass.
With another wave of post-Brexit red tape coming into force, The Independent has taken a closer look at Brexit’s biggest economic consequences and just how detrimental it is proving to be.
Conservative ministers, whether Leave or Remain backers, have largely refused to accept that Brexit has damaged Britain’s economy. But we have had a series of considered, independent estimates from experts on the big hit to economic growth from quitting the EU.
The most recent study is the bleakest. Economists at Cambridge Econometrics last month found that Brexit has already cost the UK economy £140bn in lost growth than it would have had if the UK opted to remain in the customs union and single market.
Looking at the growth through the prism of gross value added (GVA) – the overall value of goods and services – they also estimated that it would leave the UK £311bn worse off by 2035.
According to analysis carried out last year by experts at Bloomberg Economics, Brexit is costing the UK economy £100bn a year. The group estimated that gross domestic product (GDP) is 4 per cent smaller than it might have been.
Mr Sampson says that Brexit is costing the UK between £75bn and £125bn each year – the equivalent of 3 per cent to 5 per cent of GDP.
“It’s pretty clear UK growth slowed after the referendum,” he told The Independent. “Brexit has been a slow and accumulating drag on the economy.”
The economist added: “Covid and the Ukraine war made assessing the impact harder, but if you look at the studies comparing the UK and other economies, there is an ongoing impact. The gap between where our growth is and what it could have been has gradually grown over time.”
Hit to jobs and investment
Brexit has proved damaging to already sluggish levels of international investment in Brexit, say experts.
A 2022 study by the Centre for European Reform (CER) found that Brexit had cost the UK £33bn in lost investment, trade and tax revenue. The think tank found a 13.7 per cent hit to investment, when comparing the UK to a “doppelganger” group of similar economies across just one financial quarter.
The recent Cambridge Econometrics study estimated that Britain will have 32 per cent lower investment by the middle of the next decade than without Brexit.
Brexit has also been hitting jobs and wages, say economists. The Cambridge Econometrics study said Brexit Britain would have three million fewer jobs by 2035 than if it had stayed inside the EU.
A damning 2022 report from the Resolution Foundation think tank and LSE found that an average worker’s real pay was set to be £470 lower each year than if Britain had stayed inside the EU.
They said the process would dampen pay for the rest of the decade – making the country “poorer” during the 2020s.
One of the most obvious impacts of Brexit has been the extra cost and hassle for UK businesses trying to export goods to the EU. And new controls on imports from the continent – coming in further waves in April and October – are expected to make matters worse.
Post-Brexit checks and expensive paperwork have added to repeated disruption at the Port of Dover, while last year saw some supermarkets impose rationing on certain fruit and vegetable products to deal with shortages.
The CER study comparing Brexit Britain with “doppelganger” economies found that overall trade in goods was 7 per cent lower as a result of the nation’s EU exit.
It tallies broadly with the 2022 Resolution Foundation study which pointed to an 8 per cent slump in the UK’s “trade openness” – trade as a share of economic output – since Brexit.
Brexiteer business secretary Kemi Badenoch said last week that Brexit was “going well” and the government was “working through” problems.
Professor Jonathan Portes, senior fellow at King’s College London’s UK in a Changing Europe initiative, told The Independent that Brexit had “come at a significant cost to the economy – but not a cataclysmic one”.
The top economist said it was unclear whether British firms would successfully recover from the red tape burden over time. “[Brexit] will be a continuing drag on the economy,” he said. “Businesses may adjust to the extra costs, but on the other hand, we may be increasingly cut out of some supply chains.”
Food price rise
There is evidence that all the Brexit red tape has pushed up food prices. British households have paid almost £7bn to cover the cost of the added bureaucracy, according to a 2023 LSE study.
The LSE’s centre for economic performance said leaving the single market and customs union had pushed up the average household food bill by £250 since Brexit. They calculated that food inflation had rocketed by 25 per cent since 2019, but would have only have been 17 per cent if Britain had stayed in the EU.
Economists believe the energy shock which followed the Ukraine invasion has had a bigger impact than Brexit, but the UK’s exit has nonetheless had an impact on prices at the supermarket.
The Bank of England’s chief economist, Huw Pill, said in 2022 that Brexit was one factor for the UK’s high levels of inflation.
It helps explain why Paul Johnson, head of the respected Institute for Fiscal Studies (IFS) think tank, said in the same year that Brexit was “very clearly an economic own goal”.
And it is why food sector groups have called on the government to agree a new veterinary deal with the EU to align health and safety standards in a bid to ease some of the paperwork burden.
Prof Portes said polling showed that a majority of Britons were convinced Brexit has not improved the economy, but were also resigned to it. “There is a strong consensus among voters that Brexit hasn’t worked out well – but it’s also the case that most don’t want to reopen the whole thing,” he said.
Future Brexit Opportunities
Matt Lesh, director of public policy and communications at the Institute of Economic Affairs (IEA), a free-market think tank, maintained that despite some disruption, Brexit is still a fantastic opportunity for the UK.
He said: “Brexit will only ever be able to be judged in the longer term, whether or not the UK takes advantage of those opportunities. There is undoubtedly some disruption that comes from leaving the EU, but I think some of that’s been greatly exaggerated.”
Mr Lesh added that the costs of Brexit “have always been exaggerated” and what will make Britain’s leaving the EU a success will depend upon the UK improving trade relations with other parts of the world.
And the second aspect, which Mr Lesh said the government “hasn’t taken much advantage of so far”, is to have regulatory divergence that the EU in specific areas that could be an advantage to the UK’s economy.
The Department for Business and Trade pointed to the successes in the Brexit 4th Anniversary paper as evidence the government was succeeding in delivering the promises attached to Britain’s exit from the EU.
Ms Badenoch said: “The statistics and successes contained within the pages of ‘Brexit 4th Anniversary’ tell a powerful story – of a global Britain which is thriving on the world stage. When we left the European Union, there were many forecasts of inevitable decline. These have been proved false.
“My department is leveraging our post-Brexit freedoms to make the UK the best place in the world to start and grow a business. And we’re knocking down the barriers to trade; removing roughly 500 to date. In 2023 this was equivalent to removing around £1m of trade barriers every single hour.
“The British people’s conviction that the UK would excel as masters of our own fate has paid dividends. My mission – and that of my department – is to now build on these achievements. To loudly and proudly champion free markets, free trade, and free enterprise as the surest path to economic prosperity.”