Home Economics What affect is Brexit having on the UK financial system?

What affect is Brexit having on the UK financial system?

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Government Abstract


The sixth anniversary of the June 2016 vote to go away the EU prompted a wave of unfavourable commentary concerning the financial prices of Brexit. A lot of this commentary continues to be exaggerated and infrequently simply plain flawed.
The arduous proof is that leaving the EU has had remarkably little affect on the UK financial system. Among the many main superior economies, the UK has had one of many quicker charges of progress of complete GDP since June 2016 and sits comfortably in mid desk on progress in GDP per head. UK exports to the EU have recovered to long-term development ranges and the Metropolis of London has been solely mildly impacted.
Since June 2016 and up till the top of the second quarter of 2022, OECD information reveals that the cumulative progress fee of actual GDP in Italy was 4%, in Germany was 5.5%, within the U.Okay. was 6.8% and in France was 7.6%.
Claims that UK funding has been very weak since 2016, based mostly on extrapolating from 2009-2016, are deceptive as this era featured a powerful rebound in funding from the worldwide monetary disaster. In actual fact, funding remains to be near its long-run development, and among the hole will be defined by the collapse of funding in North Sea oil and gasoline. It has additionally been widespread for UK funding recoveries after recessions to be delayed.
Overseas direct funding (FDI) into the UK has held up nicely since 2016 in distinction to predictions that it will stoop after Brexit. Greenfield FDI into the UK rose by a 3rd between 2016 and 2021 and was the very best of any massive European financial system in yearly on this interval.
Removed from collapsing as some declare, UK commerce with the EU has totally recovered after some preliminary disruption, regardless of elevated commerce frictions. Underlying commerce ranges are near long-term developments. The UK’s commerce steadiness with the EU has improved – implying a lift to progress – and even sectors like meals and fish have seen exports to the EU proving remarkably resilient.
Claims that commerce developments suggest the UK financial system will probably be 4% smaller by 2030 than it will in any other case have been resulting from Brexit are notably deceptive. This 4% prediction made by the OBR is a median of different research. A key declare underlying the prediction is that there’s a sturdy hyperlink between commerce depth and productiveness. However the proof for such a hyperlink for the UK is at finest very weak and at worst non-existent.
Nor has UK inflation been considerably greater resulting from Brexit. UK inflation has been much like that within the US and EU, whereas meals worth inflation has been decrease. These unwilling to acknowledge this have due to this fact needed to depend on ‘core’ measures of inflation, which strip out meals and power. These measures have been just a little greater within the UK, however this isn’t uncommon, and might partly be defined by the UK authorities’s give attention to topping up family incomes quite than intervening immediately to scale back costs.
It’s also deceptive to assert that Brexit has induced a collapse within the pound. The pound definitely weakened in 2016 and the pace and timing of the autumn was clearly influenced by the referendum consequence. However sterling already appeared overvalued in 2015 – with the UK operating an enormous present account deficit – and the retreat within the efficient change fee in 2016 was solely to just a little beneath the typical for 2009-13. There is no such thing as a certainty that sterling wouldn’t have fallen again to the 2013 degree, albeit over an extended interval. Extra not too long ago, sterling has fallen again towards the greenback, however so have the euro and the yen. That is nonetheless primarily a narrative of US forex energy, though the response of the international change markets to Kwasi Kwarteng’s mini-budget has decreased the greenback worth of Sterling additional. None of that is immediately linked with Brexit.
There was an intense give attention to the labour market. However whereas Brexit has undoubtedly had an affect on some corporations and sectors, there may be little proof of a considerable combination impact. Some staff could also be tougher to seek out, however that is true throughout a lot of Europe and the US. Web migration has remained strongly constructive, and any lack of EU workers can overwhelmingly be defined by Covid. UK employment is near report highs and job emptiness charges are related within the UK to these in Germany or the US.
Forward of the 2016 referendum it was commonplace to listen to unfavourable feedback concerning the Metropolis of London and the way it will endure enormous job losses and an exodus of enterprise. Within the occasion, these hits haven’t materialised. Brexit-related job losses or relocations have been small, general Metropolis employment has stored rising, and UK monetary providers exports have held up nicely.
There is no such thing as a proof that remaining within the EU Single Market and (partially) the EU customs union has been a boon for Northern Eire. Northern Irish GDP did maintain up comparatively nicely throughout the pandemic, however so did Wales (additionally with a big public sector). For the reason that introduction of the Northern Eire Protocol in 2021, Northern Eire has been one of many slowest rising amongst UK areas. Proof from regional commerce information and personal enterprise surveys assist the concept that Northern Eire has been lagging the remainder of the UK.
With UK progress remaining strong, it’s vital that a few of those that had been essential of the vote to go away have retreated from disaster situations in direction of the cherry-picking of information, the tortuous use of ‘counterfactuals’, and the selective deployment of forecasts (from organisations such because the OECD and IMF) as in the event that they had been already info.
The doppelgänger fashions can’t separate out the affect of Brexit from different elements, together with Covid, fiscal coverage, and the place of every financial system is within the cycle. It’s not uncommon for any particular person nation to diverge considerably from a median of many international locations over comparatively brief durations. Furthermore, the selection of comparability international locations for the UK in these fashions is commonly inappropriate and retains altering. It’s extra informative to match the UK immediately with the key superior and particularly bigger EU economies.
The dearth of proof for vital harms from Brexit to this point is vital as a result of it was at all times possible that almost all prices could be upfront and comparatively seen, whereas most advantages would take longer to come back via. The principle consequence of Brexit was at all times the elevated freedom to develop distinctive financial insurance policies. Success or failure will rely upon how productive these insurance policies show to be.



One may need hoped that, as soon as the political determination of the citizens was made, that we’d have moved on, accepted that we’ve got left the EU and sought to make it work within the nation’s finest pursuits. Whereas in political phrases, it’s definitely the case that Brexit has occurred, the financial debate has not moved on sufficiently. This issues; since 2008 the UK financial system has grown at a gradual tempo. If we proceed to attribute our challenges to the flawed purpose – by at all times blaming Brexit – then it’s unlikely we are going to make the correct coverage selections to maneuver in direction of the financial system of sturdy and sustainable progress, excessive productiveness, and well-paid jobs.

Over latest months there was a tsunami of media tales and different claims about Brexit having a unfavourable affect on the UK financial system. Publications corresponding to The Monetary occasions[1], Economist, Guardian[2], Sunday Occasions[3] and Observer[4] have frequently promoted arguments or research suggesting that Brexit is ‘not working’, implying that some return to the EU fold must be thought of. Headlines try to hyperlink unhealthy information on the financial system to Brexit every time potential. The Conservative MP Tobias Ellwood obtained a lot publicity for his name to rejoin the EU single market[5].

Detrimental claims concerning the affect of Brexit cowl areas corresponding to GDP, commerce, funding, the labour market, inflation, the worth of sterling, and the efficiency of particular person industries together with the meals and fisheries industries and monetary providers.

Our rivalry on this report is that a lot of the proof utilized by Brexit critics to indicate a unfavourable Brexit affect is unsound. It depends on flawed strategies and thoroughly chosen dates for comparisons. It additionally usually depends on counterfactual situations to assert that the latest efficiency of the UK financial system may have or ought to have been higher. Such counterfactuals are based mostly on the experiences of different international locations or different time durations and are essentially selective and infrequently inappropriate.

Some latest claims about unfavourable results of Brexit are additionally based mostly on financial forecasts. We expect it’s flawed to put a lot weight on these. Predictions from the OECD or IMF haven’t been sufficiently correct for us to depend on their present forecasts. As for the UK Treasury, with its embarrassingly poor 2016 short-term forecasts for Brexit, we might be aware that latest Chancellors of the Exchequer have prevented the Treasury from conducting additional forecasts.

Our focus is firmly on the proof of what has occurred to output, employment, commerce, sterling, and costs because the referendum in 2016 and notably because the Commerce and Cooperation Settlement (TCA) with the EU got here into operation in January 2021. In our view, wanting on the proof from very long time sequence of UK efficiency, and making extra wise and cautious comparisons with different main economies, doesn’t recommend that Brexit has had a discernable unfavourable financial affect. Definitely, there is no such thing as a signal of the catastrophic results many observers had been predicting previous to and instantly after the referendum of 2016.

It’s too early, in our view, to definitively set up whether or not Brexit has been an financial success or not, and the consequences of the pandemic and its aftermath complicate any evaluation of latest financial efficiency. However provided that it was broadly thought that many of the prices of Brexit could be seen and up-front, and the advantages slower to come back via, the financial image painted by our evaluation suggests causes for cautious optimism concerning the long-term outlook. That is in sharp distinction to the largely downbeat and infrequently shrill media commentary of latest months.

Abstract of claims of unfavourable impacts of Brexit

A superb abstract of the latest unfavourable claims about how Brexit is damaging the UK financial system will be discovered within the Monetary Occasions’ Massive Learn ‘The deafening silence over Brexit’s financial fallout’, printed on June nineteenth 2022[6]. Whereas the article admits that ‘some gloomy predictions have didn’t materialise’, it however argues that ‘there may be rising proof that Brexit is inflicting…lasting harm to UK financial prospects’. This view has been echoed throughout a lot of the media and has influenced the continuing debate about Brexit each within the UK and globally.

The claims offered by the FT and different observers cowl quite a lot of areas:

GDP. It’s argued that UK progress has been comparatively gradual since 2016, both in absolute phrases or relative to some counterfactual path it will have taken had the UK stayed within the EU. Alternatively, reference is made to forecasts – the FT states that ‘Subsequent 12 months in response to the OECD the UK could have the bottom progress fee within the G20 apart from sanctioned Russia’ and ‘the OBR has seen no purpose to vary its prediction, first made in March 2020, that Brexit would in the end cut back productiveness and UK GDP by 4%. It says ‘little over half that harm has but to happen’.

Funding. It’s argued UK funding has fallen beneath its development path and underperformed relative to different economies since 2016 – in response to the FT ‘UK enterprise funding fails to rebound…it…flatlined because the referendum, ending a interval of progress since 2010 and falling nicely in need of the efficiency in different G7 international locations.’

Commerce. UK commerce efficiency is alleged to have been weak because the UK left the EU single market and customs union initially of 2021, both in absolute phrases or relative to different economies – the FT claims ‘Buying and selling efficiency with Europe because the TCA has turn out to be more and more ugly particularly for small firms buying and selling with Europe.’

Change fee and costs. Brexit is argued to have led to a pointy fall within the worth of sterling and pushed up UK inflation relative to the remainder of the EU, each instantly after the 2016 referendum and since 2021.

Labour markets. The UK labour provide is alleged to have been broken by Brexit, with an enormous outflow of EU staff.

The Metropolis and Monetary providers. It has repeatedly been claimed that Brexit has broken the UK’s vital monetary providers industries, by inflicting an exodus of corporations and jobs.

Northern Eire. Brexit opponents and EU sources have claimed that the financial system in Northern Eire has outperformed the remainder of the UK – from the FT once more ‘Northern Eire (the one a part of the UK to stay within the EU’s single marketplace for items), is the most effective performing a part of the UK aside from London.’

In what follows, we deal with every of those areas in flip and look at the Brexit-related claims made by critics of Brexit in every space.

What has occurred to GDP?


Overview of progress efficiency

Crucial measure of the financial affect of Brexit is what occurs to GDP. Any change in commerce, funding, employment, or different features of the financial system is more likely to have an effect on combination GDP. There may in precept be offsetting influences with a constructive affect on one variable and a unfavourable affect on one other, however in apply the claims of commentators are typically that Brexit has a better or lesser unfavourable affect on a number of key features of the financial system.

There have been a number of claims that GDP has been or will probably be decreased by Brexit. David Smith of the Sunday Occasions is maybe essentially the most enthusiastic and (over-) assured. In his column of July third[7] he wrote ‘the proof is evident. Brexit has given the UK decrease progress, greater costs (earlier than the inflation surge) and a considerably weaker pound. Anybody who suggests in any other case takes you for a idiot’.

Supply: OECD, BEA

Utilizing OECD quarterly information, Smith appropriately acknowledged that progress in UK GDP since 2016 Q2 had been above Germany and Italy and solely modestly behind France (see Chart 1). One may need thought these progress figures had been sufficient to discredit the assorted predictions of significant financial harm from Brexit, however under no circumstances. Smith then, like others, constructed a counterfactual. His view is that the UK ought to have continued to outperform these international locations by an identical quantity to the best way it did between 1992 Q2 and 2016 Q2 when the UK financial system grew practically twice as quick as Germany, nearly 3 times as quickly as Italy, and far quicker than France. Chart 2[8] reveals the expansion of those economies because the UK first joined the EEC, because it then was, in 1973. Smith’s counterfactual interval is proven between the 2 vertical traces.


Supply: OECD. UK information for 2020-2021 adjusted utilizing present worth GDP information as beneficial by the UK ONS


Smith’s interval begins in a UK recession, thus exaggerating UK progress over the interval. After 1992 the UK recovered from a deep recession, aided initially by an actual depreciation of sterling and later by a prolonged credit score growth and financial enlargement from 1999. If we exclude this era of restoration within the Nineties, then throughout the present century as much as 2016 the UK grew at related charges to France and Germany however quicker than Italy.

The comparability with Germany is clearer in Chart 3. This reveals that GDP progress within the UK lagged behind that in Germany within the early a long time of membership of the EEC/EU however started a sustained restoration after 1992. Along with the elements cited above was the expensive reunification of Germany from 1990 and a interval of gradual progress in Germany because of the eurozone monetary disaster in 2012-2013. By 2003 the UK had overtaken German progress and has remained just a little forward ever since. The quicker progress primarily occurred within the Nineties. From 2003 till 2016 there may be little distinction between UK and German progress charges and therefore no want to treat the UK’s beneficial relative efficiency since 2016 as unrepresentative in the best way that Smith suggests.

A comparability of UK progress in GDP with France additionally reveals quicker UK progress throughout Smith’s counterfactual interval of 1992-2016. The UK progress benefit lasted longer than versus Germany, till 2016, partly resulting from very gradual French progress in 2011-2015 across the time of the eurozone monetary disaster that adopted. Since 2016, French and UK progress has been related, however the disappearance of the UK’s progress benefit of 2011-2016 is just not essentially a Brexit impact as Smith blithely assumes – particularly given the weak spot of French progress in 2011-2015 and the truth that the UK’s cumulative relative progress lagged that of France till 2014.

Smith’s declare of quicker UK progress earlier than the 2016 referendum thus relies upon enormously on efficiency throughout the Nineties, and on an assumption that quicker UK progress in a selected interval of the previous will be extrapolated into the long run.


Supply: OECD

A extra acceptable counterfactual interval, in our view, may be the last decade instantly earlier than the UK Brexit referendum when UK financial progress was much like that in Germany however quicker than France. Even on this interval, relative UK efficiency was boosted by the unfavourable affect in Germany and France of the eurozone monetary disaster of 2012-2013. But when we however take it as a reference interval, there is no such thing as a proof that UK progress has underperformed since both the Brexit referendum or the interval outdoors the EU’s single market and customs union since January 2021.

Smith additionally claimed that progress in UK per capita GDP because the spring of 2016 was slower than in France or Italy, albeit quicker than in Germany. Smith doesn’t point out that UK per capita progress was additionally quicker than in Canada, Spain, and Japan (however not the US which has recovered quickly because the pandemic with enormous fiscal boosts). As soon as once more, financial efficiency throughout this era is closely influenced by the pandemic particularly in 2020 but additionally throughout the restoration part in 2021.

Our view is that the UK financial system has carried out largely in keeping with its principal comparator international locations because the Brexit referendum. Over the whole post-WW2 interval per capita GDP within the UK has grown at about the identical fee because the US or (since 1973) because the G7, however there are cyclical variations relying primarily on variations in fiscal and financial coverage[9]. The US’s main fiscal enlargement beneath each Trump and Biden has led to fast progress however as inflation accelerates greater rates of interest are more likely to gradual US progress. It is going to be a number of years earlier than we are able to clearly see any sustained affect of Brexit on the UK efficiency relative to that of the US.

Artificial Counterfactual or Doppelgänger Analyses

Smith can be one of a giant group of media commentators to assist the most recent instance of the usage of the artificial counterfactual or ‘doppelgänger’ strategy, by the Centre for European Reform in 2022[10]. Because of the widespread publicity obtained by this report and its frequent quotation by these in favour of rejoining the only market and customized union, we describe it intimately[11].

The CER report’s writer, John Springford, described the tactic as ‘an algorithm [which] compares information on the UK’s financial efficiency with that of twenty-two different superior economies. It selects a subset of these international locations and allocates every a weighting, to create a basket of nations that minimises the distinction between their information and that of the UK. The algorithm matches the expansion fee of actual GDP, GFCF [Gross fixed capital formation], providers and items commerce, from Q1 2009, in addition to the inflation fee, industrial manufacturing as a share of GDP, common years of education and different variables. We will then examine the efficiency of this doppelgänger towards that of the UK.’

The doppelgänger group for GDP is made up of america (31 per cent), Germany (15 per cent), New Zealand (14 per cent), Norway (8 per cent) and Australia (5 per cent). The remaining international locations make up lower than 5 per cent of the doppelgänger every. These international locations had been chosen utilizing quarterly information from the pre-Brexit interval 2009 Q1 to 2016 Q2. The UK’s efficiency is then in contrast with that of the doppelgänger group from 2016 Q3 to 2021 This autumn. For commerce and funding different teams and durations are used.

The result’s proven within the CER’s chart 1 (reproduced right here as Chart 4) evaluating the UK with the CER’s doppelgänger teams. For GDP the UK is 2.9% behind the comparators by the top of 2019 and 5.2% by the top of 2021. The tactic additionally generates massive unfavourable impacts for Brexit on funding and commerce in items however not commerce in providers.

This technique has many issues which imply that its outcomes can’t be taken as representing a dependable counterfactual:

The comparator international locations could also be inappropriate. Doppelgänger research usually use comparator international locations that are economically very totally different from the UK. It’s not apparent why economies like New Zealand, Japan and Hungary with very totally different industrial and commerce patterns must be good proxies for the behaviour of the UK financial system in a non-Brexit world.

The comparator international locations maintain altering. The present set of comparator international locations utilized by CER is just not the identical as in earlier CER doppelgänger workout routines. As an example, in its early calculations beginning in June 2018[12] the comparator international locations had been primarily US, Germany and Luxemburg but additionally Iceland and Greece. The June 2022 CER report additionally makes use of totally different units of comparators for GDP, funding, and commerce. Utilizing totally different comparators for particular person variables is quite unsatisfactory.

The most recent report says that, prior to now, comparator international locations had been dropped as a result of some international locations had been topic to financial shocks unrelated to Brexit. It cites the important thing instance of the US the place main fiscal expansions beneath Trump and Biden accelerated financial progress. This was some extent made in a critique[13] of the sooner CER estimates. Though the expansion of the UK financial system is correlated with the US over the long term, there is no such thing as a assured correlation over the brief run. Utilizing the US as a benchmark for post-2016 progress was deceptive because of the fiscal enlargement generated by the Trump administration. The IMF fiscal monitor reveals that the US fiscal stance loosened by 3% between 2015 and 2019 whereas within the UK there was a tightening of 1%, a big sufficient distinction to considerably have an effect on financial progress. This level concerning the US is acknowledged within the present CER report however has not stopped it utilizing the US as a comparator for GDP and doesn’t look like factored into the calculations.

Chart 4 – CER doppelgänger chart (copy)


Divergence can happen for a lot of causes, not solely Brexit. The truth that totally different international locations are topic to totally different shocks at totally different occasions, and are at totally different factors within the financial cycle, is a normal weak spot within the doppelgänger strategy. Simply because financial progress in two international locations has been intently correlated prior to now doesn’t imply that they are going to proceed to be correlated in future. This will depend on a variety of coverage decisions and different circumstances. The CER interpret any divergence between the UK and the comparators after 2016 or 2020 as being resulting from Brexit however, as we are going to present, this needn’t be the case.

Maybe essentially the most critical flaw within the CER evaluation is the selection of interval for setting a benchmark. As mentioned above, the interval 2009-2016 was one in every of restoration within the UK from the deep banking disaster recession of 2008/9. Trying to match different international locations with the UK over this era will naturally choose quicker rising economies. Most eurozone economies besides Germany are thus excluded. If, as we argue, the interval of quicker UK progress was inherently short-term, the benchmark international locations will stop to be related as soon as the cycle turns.  We can’t say when the cycle would have turned, however to ascribe any slower progress after 2016 Q2 to Brexit is heroic to say the say the least.


Supply: OECD. US {dollars}, quantity estimates, mounted PPPs, OECD reference 12 months, seasonally adjusted

This level is illustrated in Chart 5 which reveals progress in actual GDP for the UK relative to the remainder of the G7 group of main economies from 1990. The CER’s comparator interval (2009-16) occurs to coincide largely with a cyclical upturn within the UK financial system relative to the remainder of the G7 over 2011-16.  It’s implausible, Brexit or no Brexit, {that a} relative upswing would have continued for lengthy after 2016.  If it had, and the UK had continued its development outperformance relative to the remainder of the G7, the UK would have reached an unprecedented degree above the G7 common by the top of 2019.

That is most unlikely and certainly what we noticed was what was to be anticipated: a cyclical slowdown between 2016 and 2019 which stored the UK inside the broad GDP vary established since 2000. In actual fact, the downturn within the UK share of GDP within the G7 is wholly because of the accelerated progress within the US. The UK share of the G7 excluding the US doesn’t fall after the Brexit referendum in 2016. It continues to rise and by 2022 Q2 is at its highest ever degree and precisely on the development of the rising UK share since 1990. There may be thus no apparent signal of any unfavourable affect of Brexit.

So, the CER’s conclusion that Brexit induced a 2.9% lack of GDP between 2016 and 2020 is predicated on an assumption that with out Brexit the UK would have continued to stay at its 2016 peak relative to the G6, with no cyclical downturn. To imagine {that a} relative slowdown is essentially, and even wholly, resulting from a single issue — Brexit — would require clear proof to be offered.  The CER current none aside from the coincidence in timing. The CER additionally assume that, as soon as lockdowns ceased and financial exercise started to get well, there could be no additional distortion in measurement and therefore any additional variations will probably be resulting from Brexit alone. This will solely be considered a courageous assumption given what we learn about ongoing disruption in all economies and backlogs in public providers.

Related criticisms will be made about different doppelgänger-based research. Dhingra et al. (2022) examine UK GDP with that of the remainder of the G7 from 2013 Q1 to 2019 Q3 and conclude that extra fast UK progress throughout this brief pre-referendum interval contrasts with slower relative progress within the three years after the referendum. It’s a good instance of inappropriate date choice resulting in a unfavourable conclusion for Brexit. Chart 6 reveals that over a for much longer interval the UK financial system grew at a lot the identical the identical fee as the remainder of the G7 albeit with brief durations of divergence.


Supply: OECD. US {dollars}, quantity estimates, mounted PPPs, OECD reference 12 months, seasonally adjusted. Be aware the information for 2020 and 2021 is adjusted for variations in measurement of public-sector output as famous earlier.

Dhingra et al. attempt to hyperlink UK progress efficiency after the referendum to Brexit results utilizing the Financial institution of England’s Choice Maker Panel (DMP), claiming it reveals corporations cited Brexit as a significant supply of uncertainty particularly throughout 2017 and 2018. The way forward for Brexit was definitely in query throughout these years however whether or not one ascribes this to Brexit itself or to opposition makes an attempt in parliament to water-down or abandon Brexit after the 2017 normal election is a matter of judgement. Regardless of the state of enterprise confidence, any unfavourable affect on nationwide output is tough to discern because the above evaluation reveals.

The affect of the pandemic and measurement points

Comparisons of very latest developments in GDP progress within the UK and elsewhere are enormously sophisticated by the Covid pandemic which massively disrupted all economies from the start of 2020, a interval which represents practically half of the comparator timeline utilized by CER and others.  International locations used totally different ranges and timings of lockdown with various impacts on their economies they usually additionally used totally different strategies to measure GDP throughout these uncommon circumstances. The measurement of GDP variations earlier than the pandemic is controversial sufficient, however the CER’s try to increase its technique into the pandemic and its speedy aftermath is hopelessly flawed.

Not solely are the figures for all of the comparator economies distorted, however there are additionally particular measurement distortions between the UK and lots of others.  The variations within the affect of Covid on GDP between the UK and different superior economies have been analysed intimately by the ONS[14] in  a February 2021 report. The ONS make two vital factors. Firstly, the UK has extra of its financial exercise in providers which require private contact. These embrace resort and restaurant sectors, plus cultural and sports activities actions.

Secondly there is a vital distinction in the best way output is measured in public sectors, together with well being and training. The ONS has totally utilized worldwide requirements by utilizing direct output indicators such because the variety of operations performed by the NHS or GP consultations and the variety of youngsters in class. Many of those indicators of output which work nicely throughout regular durations confirmed falls in output throughout the pandemic as a result of regular medical procedures and instructing had been disrupted, despite the fact that the workers had been totally employed on covid-related therapies and on distance studying in faculties and schools. Different international locations didn’t use this system and easily used expenditure information deflated for worth adjustments, which confirmed a a lot decrease lack of output resulting from covid.

Worldwide comparisons thus present a a lot bigger lack of actual output in 2020 for the UK, largely although not totally recovering throughout 2021. That is principally a measurement impact not an correct account of output throughout the pandemic – there’s a a lot larger hole in 2020 between present and fixed worth GDP adjustments than in different G7 economies, reflecting measurement variations.

These measurement variations matter quite a bit when cross-country comparisons are tried. For instance, if we use normal fixed worth information for UK and French GDP to measure output efficiency in 2020 and 2021, French progress seems about 2% greater than UK GDP from 2019 This autumn to 2021 This autumn. But when we as an alternative use present worth sequence because the ONS recommend, the expansion charges of output over this entire interval are nearly an identical (Chart 7). Neither is this essentially the ultimate phrase: since latest information of GDP is topic to revision, at the moment on totally different timescales and reflecting therapy of the economies throughout Covid, these information might change additional


 Supply: Nationwide Accounts

As an extra test on the conclusions concerning the affect of Brexit, Chart 8 reveals information for output in manufacturing industries which is much less topic to revision and can be the a part of output most delicate to Brexit results as it’s extremely tradable. A unfavourable impact from Brexit-induced adjustments in entry to EU markets (or the anticipation of such adjustments) must be evident in a weaker relative efficiency of the UK manufacturing sector. Nonetheless, the information present manufacturing output rising quicker than main EU economies from 2016 to 2019. Following a considerably shallower dip than within the EU economies in 2020 Q2, UK output then recovered quicker than in France or Germany. By mid-2022 UK output was nicely above its 2016 degree and forward of all three main EU economies. As soon as once more, there is no such thing as a indication within the arduous information that Brexit has broken UK output.


Supply: OECD Oct 2022 https://information.oecd.org/business/industrial-production.htm


Financial forecasts and the way forward for Brexit

Lots of the claims a few unfavourable affect of Brexit on GDP are based mostly on forecasts quite than precise information. Some latest commentary has centered on IMF or OECD forecasts for the subsequent two years, selecting out 2023 as a doubtlessly weak 12 months for the UK relative to different superior economies. The UK is in fact more likely to have weak years now and again. However given the patchy forecasting report of those our bodies and the key uncertainties round such forecasts at current (unrelated to Brexit), we’d not be inclined to provide such forecasts a lot weight.

What about longer-term forecasts? Dhingra and Sampson (2022)[15] state that ‘the consensus, shared by most researchers, coverage establishments and companies, is that Brexit could have a unfavourable long-run impact on the UK financial system by elevating limitations to commerce, migration and funding between the UK and EU’. However these research have usually featured unrealistic assumptions. The research by Campos et al (2014) incorporates a fully inappropriate reliance on New Zealand as a benchmark financial system. One other research, Dhingra et al. (2017)[16] solely finds a small impact from commerce limitations and as an alternative depends on estimates of losses associated to the UK remaining aloof from future EU regulatory reforms – a matter of future UK coverage, not Brexit per se, and depending on what regulatory reforms are adopted within the UK.

As well as, we might seek advice from the deeply flawed UK Treasury research[17]  and related research by the OECD and IMF. The Treasury work particularly has been topic to extreme criticism for its methodological failures and unrealistic assumptions for instance in Gudgin et al. (2017)[18], Coutts, Gudgin, and Buchanan (2018)[19] and most not too long ago (in notably damning phrases) by Semken and Hay (2021)[20].

Essentially the most broadly quoted long-term estimate for the affect of Brexit on UK GDP originates from the UK Workplace for Funds Duty (OBR) which posits a 4% hit. However this estimate is just not what it appears. It’s not the results of any forecasting or modelling work by the OBR itself however as an alternative is simply a median quantity for the impact of Brexit on UK productiveness, estimated by the OBR from a variety of different research[21], together with among the badly flawed research talked about above and a few which have implausibly excessive estimates of unfavourable results from Brexit. A specific downside with a few of these long-term estimates is their reliance on a powerful assumed relationship between commerce depth and productiveness, a problem we are going to return to in Chapter 5.

Conclusions on GDP

The UK financial system has carried out fairly nicely because the Brexit referendum in comparison with most main superior economies. One of the apparent conclusions is that the dire warnings made, particularly by the Treasury instantly previous to the referendum, haven’t come to go. To achieve an reverse conclusion, analysts (a few of whom are clearly opponents of Brexit) have tried to make use of counterfactual situations to display that within the absence of Brexit the UK financial system would have grown even quicker than it really did. The important thing weak spot of all these counterfactual situations is that they’ve used as benchmarks previous durations wherein the UK financial system was recovering from recession. They thus cowl cyclical recoveries which the analysts then assume would have lasted indefinitely (or a minimum of up till the current day) within the absence of Brexit.

The later years of the post-referendum interval additionally coincided with essentially the most economically disruptive pandemic for nearly a century. A specific issue is that the pandemic and its related lockdowns lasted into 2021 because the UK lastly departed from the EU’s single market and customs union beneath the Commerce and Cooperation Settlement (TCA). Most western economies recorded sturdy recoveries throughout 2020 and into 2021 however it’s tough to differentiate covid and Brexit results throughout this era besides maybe for short-term commerce disruption within the UK initially of 2021. It should thus be a while earlier than it turns into potential to attract clear conclusions concerning the long-term affect of Brexit. Some makes an attempt to leap the gun on this can be politically motivated and care and endurance is required to succeed in significant conclusions.


One of the assured assertions in articles on the affect of Brexit is that UK funding is far decrease because the referendum than it will have been within the absence of Brexit. Our view is that insufficient funding is a longstanding downside within the UK and the newest years have skilled sluggish developments particularly in enterprise funding. It’s not clear, nevertheless, whether or not this is because of Brexit, Covid, structural elements, the timing of funding cycles, or the political disaster triggered by the referendum.

UK funding has been on a rising development for the final half century however fell nicely beneath the long-term development throughout the pandemic, earlier than recovering considerably. Brexit critics argue that this restoration has been incomplete, particularly with respect to the pre-2016 development, however their arguments are overstated.

First, complete UK funding has the truth is recovered to round its long-term development degree. Brexit critics as an alternative give attention to the narrower idea of enterprise funding, which excludes authorities funding and funding in dwellings (Chart 9).

Second, Brexit critics exaggerate the obvious weak spot in enterprise funding by utilizing inappropriately brief time durations. The upward development throughout the post-2009 restoration is extrapolated past 2016 and precise funding post-2016 is then in contrast with the extrapolated development to indicate that the precise degree is nicely beneath this extrapolated development. This isn’t an inexpensive counterfactual place as funding was nicely above its long-term development by 2016, within the means of recovering from a really weak interval after the worldwide monetary disaster. A slowdown after this fast catch-up interval may thus be anticipated. Funding was badly affected by Covid however has been recovering because the first lockdown in Spring 2021. Taking this longer-term view, enterprise funding in Q2 2022 was a comparatively modest 6% beneath development.


Supply: ONS

Be aware: GFCF-gross mounted capital formation, or complete funding

One other issue exaggerating the latest obvious weak spot of UK enterprise funding is the collapse since 2016 of funding in extraction – largely North Sea oil and gasoline. Since mid-2016, funding on this sector has slumped from £4bn per quarter (8% of enterprise funding) to only £0.6bn (1.1% of enterprise funding). This displays a long-term decline within the business and a few authorities selections and isn’t linked to Brexit. If extraction funding is excluded, UK enterprise funding in Q2 2022 was nearly the identical as in Q2 2016, as an alternative of being 6% decrease because the headline quantity suggests and was near its long-term development (Chart 10).


Supply: ONS

Brexit critics have additionally in contrast UK funding developments unfavourably with funding developments in different superior economies. As famous earlier, the CER ‘doppelgänger’ research tried to do that by evaluating UK complete funding with a bunch comprising the US (48 per cent), New Zealand (15 per cent), Iceland and Denmark (9 per cent every) and Japan (8 per cent). The evaluation by CER reveals UK funding falling beneath that of the comparators within the 2017-19 interval with little additional deterioration throughout and after the pandemic, implying any Brexit impact pre-dated the UK exit from the EU customs union and single market.


Supply: ONS, Eurostat. EU-3=Germany, France, and Italy

One rationalization for funding developments in 2017-2019 pertains to political and financial uncertainties on this interval within the aftermath of the Brexit referendum. However cyclical elements are most likely extra vital. As famous above, UK funding was nicely above development in 2016 and solely in distinctive circumstances wouldn’t it have continued to develop at an above-trend fee. Importantly, on this interval funding within the large EU economies was beneath development, from which a restoration was possible (Chart 11). So apparently unfavourable comparisons with different economies could be selecting up the impact of unsynchronised funding cycles.

As famous earlier, we discover the doppelgänger strategy flawed and like to match UK financial efficiency immediately with different main superior economies, particularly the big EU economies. If we do that, then the UK funding efficiency because the finish of 2019 does look sluggish in comparison with Germany and particularly France. Nonetheless, the distinction in efficiency with Germany is just not massive and what we see right here could be a structural function of the UK financial system, i.e. that it tends to have delayed funding recoveries after downturns. If we glance again to the aftermath of the recessions of the early Nineties and the recessions that adopted the worldwide monetary disaster, we are able to see that the UK enterprise funding recoveries in these earlier durations additionally lagged these of Germany and France (Chart 12).


Supply: OECD/ONS. Enterprise funding for Germany and France estimated by excluding authorities funding and funding in dwellings from complete funding.

At this level, one other well being warning is acceptable. A serious complication in decoding cross-country comparisons since 2019 is the affect of the covid pandemic. The unfavourable affect of the pandemic in 2020 could be very clear however the timing of this affect, each the preliminary funding stoop and the next restoration, could have diversified throughout economies resulting from totally different Covid insurance policies and we can’t be sure that the affect of those timing shifts has fully washed out of the information but.

One additional space Brexit critics have centered on is international direct funding (FD) into the UK. A lot of the literature claiming unfavourable results from Brexit has argued that FDI into the UK would stoop, with damaging results on productiveness and progress and a few latest analyses[22] have claimed this stoop has already occurred. However these analyses sometimes give attention to measures of general FDI that are closely influenced by massive mergers and acquisitions flows – monetary transactions which can be statistically noisy and can’t be anticipated to have massive results on UK productiveness. A greater measure is greenfield funding in manufacturing amenities.

Taking a look at greenfield funding developments we are able to see that the UK since 2016 has continued to draw extra greenfield funding than any of the big EU international locations, regardless of upturns in inflows into Germany and Spain. Furthermore, from 2016-2021, the amount of greenfield funding into the UK rose from US$32 billion to US$44 billion, i.e. by over a 3rd (Chart 13). This was the fourth finest 12 months since 2003, regardless of the pandemic – and ‘regardless of Brexit’.


Supply: UNCTAD

Conclusions on Funding

Claims that UK funding has been hit arduous by Brexit look exaggerated. Complete UK funding is near its long-term development degree and the obvious sluggishness of enterprise funding lately seems to be associated to a number of elements not linked with Brexit together with the collapse of North Sea oil funding and cyclical elements. The same weak spot of enterprise funding in Germany might also level to the affect of the pandemic. Given these a number of elements, any try to blame Brexit for latest developments in UK enterprise funding is little greater than guesswork. It’s potential that enterprise uncertainty dampened funding (particularly in 2017-2019) however it’s arduous to disentangle this from different elements and enterprise expectations might also have been influenced by overly unfavourable forecasts and deceptive reporting of output developments described elsewhere on this report. Claims that FDI has slumped resulting from Brexit are in the meantime deceptive as funding in productive belongings has remained sturdy.



Worldwide commerce points are central to any evaluation of the financial affect of Brexit. From simply earlier than the UK Brexit referendum to the beginning of 2021, when the UK lastly exited the EU’s customs union and single market, analyses by the UK Treasury and different our bodies argued that –

Brexit would result in very massive new commerce limitations being created between the UK and the EU, particularly non-tariff limitations. These may be as massive as 20% of commerce values
Commerce paperwork would trigger large-scale disruption on the UK border
Consequently, UK commerce with the EU would shrink dramatically, by as a lot as 50% in the long run relative to a no-Brexit state of affairs
The UK would turn out to be a much less open financial system, and this may have a giant unfavourable impact on UK productiveness and on UK GDP which could fall by 4-8% in the long run in comparison with a no-Brexit state of affairs[23]

These claims at all times appeared exaggerated, being based mostly on flawed methodologies, and utilizing extraordinarily pessimistic assumptions. Gudgin, Coutts and Gibson (2016)[24] instructed that the UK Treasury exaggerated the affect of EU membership on UK commerce (and thereby the affect of Brexit on commerce) by an element of 4. Kee & Nicita (2017)[25] instructed commerce limitations confronted by UK exporters could be far decrease than the Treasury and others claimed and that UK exports to the EU would solely fall by a negligible quantity. Extra not too long ago, a damning evaluation of the Treasury methodology by Semken and Hay[26] cited ‘methodological points, unrealistic assumptions, and misrepresentations of established info’.

In distinction to the catastrophic claims of the Treasury and others, the overall view of Brexit-supportive economists was that exiting the EU’s customs union and single market would result in a modest short-term decline of UK commerce with the EU offset over the long run by a reorientation of commerce in direction of the remainder of the world and a greater productiveness efficiency resulting from smarter regulation – the ‘Nike Swoosh’[27] sample instructed by Gerard Lyons.

UK commerce developments because the begin of 2021

We now have 18 months or so of commerce information to have a look at to evaluate how correct these competing claims have proved to be.

Brexit critics proceed to assert massive unfavourable results. Certainly, latest months have seen a deluge of commentators, politicians, and lecturers arguing that the information to this point assist their earlier predictions. UK commerce, we’re informed, has taken a ‘large hit’ from Brexit, even struggling a ‘rupture’. The UK Workplace for Funds Duty has argued that commerce developments because the begin of 2021 are in keeping with pre-Brexit Treasury claims that UK GDP in the long term will probably be reduce by 4% resulting from Brexit.

There are two variations of the most recent trade-related arguments. The primary takes a crude have a look at the out there information and tries to indicate a giant unfavourable impact. The second makes an attempt to match UK commerce efficiency to an alternate path it may need taken within the absence of Brexit. Neither of those approaches stands as much as critical scrutiny.

The UK and EU signed a commerce deal (the TCA) very late within the day in 2020, giving corporations little time to organize. This contributed to some disruption of UK commerce with the EU initially of 2021, though notably the massive queues of lorries on the border that had been predicted failed to look. The preliminary disruption proved short-lived, nevertheless, with UK exports to the EU recovering via 2021 and early 2022.

Precisely the place this leaves UK commerce with the EU relative to the pre-Brexit place will depend on which information sequence you employ. The best strategy is simply to look the nominal worth of UK exports. These reached a report degree in July 2022, some 21% greater than the typical degree of 2018 (most likely the most effective comparability given distortions in each 2019 and 2020 resulting from stockpiling forward of Brexit deadlines and because of the coronavirus pandemic).

That is most likely not the most effective measure, nevertheless, as latest months have seen UK export values to the EU inflated by large-scale on-shipments of gasoline at excessive present world costs. In our view it makes extra sense to have a look at fixed worth or quantity sequence and better of all to have a look at quantity sequence that exclude oil and erratic gadgets (corresponding to valuable stones) which may distort brief time period developments. If we do that, then the easy quantity sequence reveals UK exports to the EU in July down 5% in comparison with the 2018 common, whereas UK exports to the EU ex-oil and erratics had been unchanged in comparison with the 2018 common (see Chart 14).


This preliminary have a look at UK exports to the EU since 2020 doesn’t present the ‘large hit’ or ‘rupture’ being talked about by many commentators. So the place do these excited claims come from?

One supply of latest claims is a failure to have a look at the commerce information in ample element. Particularly, some observers have been specializing in the sequence for complete UK exports – not UK exports to the EU. In the event you have a look at the present or fixed worth sequence for complete UK exports, they do look like considerably decrease than pre-covid ranges. However to make use of this as proof for a big unfavourable impact on UK exports from Brexit is deceptive.


First, if oil and erratics are stripped out, UK complete exports in July had been solely round 6% beneath the 2018 common degree. Extra importantly nonetheless, this shortfall was wholly the results of a weakening in UK exports to non-EU international locations relative to 2018 – not weaker exports to the EU. In July 2022, exports to the EU ex-oil and erratics had been, as beforehand famous, the identical because the 2018 common. However exports to non-EU international locations had been down by round 11% (Chart 15). Clearly, this can’t be resulting from Brexit as no vital new commerce limitations with non-EU international locations have been created.


A have a look at exports to the EU by business supplies some helpful additional insights. First, the large unfavourable affect of oil and erratics is evident. Oil exports in July 2022 had been 24% down on the 2018 month-to-month common and erratics down 23%. Neither of those large drops will be ascribed to Brexit. The autumn in oil exports is the results of a structural decline in output[28] from ageing oilfields within the North Sea – a supply-side impact. Erratic exports, in the meantime, fell largely resulting from decrease plane exports. This seems to be largely a pandemic impact. The drop started in 2020 and US plane exports present an identical fall which presumably can’t be resulting from Brexit.

Elsewhere, the sample of efficiency is diversified, with weak performances in street automobiles (once more a world impact – linked to the worldwide chip scarcity) and clothes (because of the collapse of re-exports of Asian clothes) however sturdy rises in drinks, scientific and photographic items, and mechanical equipment. A notable shock is that meat, dairy, and fish exports had been little modified on 2018 ranges – regardless of a lot publicity about how these sectors had been dealing with acute issues and pre-Brexit estimates that they’d face insuperable non-tariff limitations[29] (Chart 16).

Is UK commerce ‘underperforming’?

The evaluation above suggests {that a} cautious have a look at the information reveals no proof of a giant ‘hit’ to UK commerce with the EU because the begin of 2021. This conclusion has additionally been reached by different observers. The Nationwide Institute of Financial and Social Analysis (NIESR), in a notable recantation[30] of its earlier view – has accepted that not solely have the poor commerce numbers predicted earlier than Brexit didn’t materialise, however the internet commerce place with the EU has improved considerably since 2016 (see Chart 17). This means a constructive impact on UK progress from post-Brexit commerce developments. Equally, Sampson et al[31]. report ‘solely [a] short-term decline in relative exports to the EU’.


With the precise commerce information not exhibiting the sorts of large falls that had been predicted earlier than the UK left the EU customs union and single market, some analysts have modified tack and as an alternative tried to indicate that, even when UK commerce has not modified a lot from pre-Brexit ranges, it’s nonetheless a lot decrease than it would in any other case have been had the UK not left the EU.

The principle strategy right here has been the so-called ‘doppelgänger’ technique referred to earlier (Chapter 2). We now have outlined our objections to this strategy already, together with that this strategy compares the UK to economies which can be structurally very totally different. It’s not apparent why an financial system with a really totally different sample of exports by product and by vacation spot could be a very good information for the way UK exports may need carried out in some various world. Any previous resemblance may simply be coincidence.

An easier and much more highly effective objection, nevertheless, is to only have a look at the precise historic developments of UK items exports to the EU. If we do that it turns into instantly clear that there is no such thing as a long-term upward development from which UK exports to the EU may need departed within the final 12 months and a half, and even since 2016. The quantity of UK items exports to the EU, ex-oil and erratics, in July 2022 was barely above on a linear development line drawn since 2000

The flat development in UK export volumes to the EU in flip displays flat demand in that market. UK exports to the EU have a tendency to trace eurozone industrial output fairly intently, and eurozone industrial output was on the identical degree in July 2022 as in 2018 or 2007 (see Chart 18) with eurozone shopper spending additionally flat over this era. So, the UK’s underlying exports to the EU in latest months look just about the place you may count on them to be given EU demand.

Exports to non-EU locations, in contrast, have grown constantly within the final 15-20 years. Some latest analyses, claiming UK exports are underperforming their ‘development’ progress resulting from Brexit, attain this conclusion by conflating UK exports to EU and non-EU locations. As we’ve got already famous, non-EU exports have been surprisingly weak since early 2021 – they’re at the moment round 11% beneath a long-term development line. However this can’t be associated to Brexit.


Companies exports

What of UK exports of providers, which account for round half of complete UK exports? Right here too, there have been claims that Brexit has had a unfavourable affect, however once more the precise commerce information don’t assist this. Companies exports had been badly hit in 2020 because of the pandemic which crushed transport and journey commerce. However the seasonally adjusted information because the begin of 2021 present no apparent affect from the UK totally leaving the EU’s commerce and regulatory methods. As a substitute, UK providers exports to the EU have been steadily recovering from the pandemic-related losses of 2020. Certainly, they’ve grown quicker than providers to non-EU locations, which have in flip carried out broadly in keeping with US providers exports (Chart 19).


Some observers have claimed that the harm was already finished within the interval from 2016-2019, however once more this isn’t supported by the information. From Q1 2016 to This autumn 2019, providers exports to the EU rose 27% and people to non-EU locations by 32%. The distinction could be very small and doubtless to not do with Brexit as there may be nothing uncommon about providers exports to the EU rising extra slowly than these to non-EU locations – that has been the sample for more often than not since 1999.

The trade-productivity hyperlink: a home constructed on sand

An important ingredient of the pre-Brexit predictions of big GDP losses from the UK leaving the EU customs union and single market was the assertion that decrease ranges of commerce would have a giant unfavourable knock-on impact on long-term productiveness progress. The UK’s Workplace of Funds Duty (OBR) continues to make this declare, arguing[32] that latest UK commerce efficiency is line with a long-term drop in UK GDP of 4% in comparison with a no-Brexit state of affairs. Most of this determine comes from the supposed trade-productivity hyperlink.

This declare is already rendered doubtful by our evaluation of underlying shifts in UK commerce because the begin of 2021. However as well as, claims that adjustments in commerce depth have a powerful causal hyperlink to productiveness should not nicely supported by the proof.

The literature overview in Wales et al. (2018)[33] suggests the load of proof favours the notion that productiveness drives commerce, quite than commerce driving productiveness. UK Treasury research which have pushed the commerce to productiveness hyperlink prior to now have cited the research by Frankel et al. (1999)[34], however this research admits its outcomes are ‘not very exactly estimated’ and solely marginally statistically vital.

The affiliation of commerce and productiveness progress discovered in lots of earlier Brexit research can be often based mostly on learning massive samples of largely rising economies. For top earnings economies, and for the UK alone, no statistical hyperlink between commerce and productiveness is seen. For a pattern of twenty high-income OECD economies, there may be zero correlation between progress in commerce and progress in output per hour between 1980 and 2019 (see Chart 20).


Wanting simply on the UK there appears to be no historic affiliation of commerce openness and productiveness because the Sixties. Productiveness progress dropped within the years instantly after the UK joined the EU in 1973, though commerce openness rose modestly. Extra placing nonetheless, the last decade or so after the inception of the EU single market in 1992 noticed UK productiveness progress flat regardless of a transparent rise within the export to GDP ratio. After 2007, UK productiveness progress slumped even because the export/GDP ratio trended greater nonetheless (see Chart 21).


A firm-level research[35] by the Workplace for Nationwide Statistics (ONS) additionally doesn’t assist the notion that Brexit will result in massive unfavourable results on UK productiveness. It reveals that exporters to non-EU international locations are about 20% extra productive than non-exporting corporations – however for exporters to the EU, the ‘productiveness premium’ over non-exporting corporations is minimal. These findings make it arduous to argue that decreased exports to the EU, ensuing from Brexit, would have massive unfavourable results on combination UK productiveness.

Conclusions on commerce

Current claims that UK commerce has taken a giant ‘hit’ since Brexit and that commerce developments because the begin of 2021 are in line with a big long-term decline in UK GDP relative to what it will have been in a no-Brexit state of affairs signify a false narrative:

A cautious have a look at UK commerce information reveals a powerful restoration in commerce with the EU after some preliminary disruption initially of 2021. In July 2022, the worth of UK exports to the EU hit a report degree. Extra conservatively, UK export volumes to the EU excluding oil and erratic gadgets, had been the identical as the typical degree of 2018
Any obvious weak spot in complete UK export volumes is because of decrease exports to non-EU international locations – this can’t be resulting from Brexit.
Removed from collapsing beneath the load of enormous new commerce limitations, even meals and fishing exports to the EU are little modified on 2018 ranges. Certainly, exports of salmon to the EU rose sharply[36] in 2021.
‘Doppelgänger’ analyses claiming that UK exports to the EU are decrease than they may have been in a no-Brexit state of affairs are deeply problematic from a methodological viewpoint. In addition they ignore the essential indisputable fact that the long-term development in UK exports to the EU is flat. UK exports to the EU are at the moment a lot the place you’ll count on them to be based mostly on developments in eurozone demand.
There is no such thing as a convincing proof of UK providers exports to the EU having been negatively affected by Brexit, both because the begin of 2021 or within the 2016-2020 interval.
Claims by the OBR that latest UK commerce efficiency is in line with a 4% drop in long-term UK GDP, relative to a no-Brexit state of affairs, are merely not in line with the proof. There is no such thing as a proof of a historic hyperlink between UK commerce depth and productiveness progress and no proof of such a relationship for a cross-section of high-income economies.

A full evaluation of the commerce affect of Brexit won’t be potential for some years, particularly as it should take time for the affect of recent UK commerce offers with non-EU international locations to begin to come via.

Nonetheless, the efficiency of UK exports to the EU because the begin of 2021 has if something been higher than most Brexit-supportive economists anticipated and really distant certainly from the catastrophic situations outlined by the Treasury and others from 2016-2020. Solutions that the UK’s commerce relationship with the EU must be ‘mounted’ (often implying the UK re-joining the EU single market and/or customs union), made by some UK politicians not too long ago, are at finest extraordinarily untimely and at worst little greater than mischief-making.

Change fee and inflation

An vital a part of the anti-Brexit narrative is that the vote to go away the EU has led to a collapse within the worth of the pound and that this, mixed with new limitations to commerce and decreased labour provide, signifies that UK inflation will probably be greater (and for longer) than it will in any other case have been.

Some distinguished Remainers, corresponding to Lord Rose, have instructed that as a lot as half of the UK’s present inflation has been brought on by Brexit[37]. This presumably imply that as an alternative of heading above 10%, the CPI fee may solely be 5%, which might make it one of many lowest within the West. That’s clearly nonsense.

At first sight, the previous MPC member, Adam Posen, has gone even additional. A deceptive Bloomberg headline[38] in April quoted him as saying that ‘Brexit explains 80% of UK inflation’. In actual fact, his declare was that Brexit is ‘80%’ of the rationale why the IMF is forecasting that UK inflation will probably be greater than the remainder of the G7 in 2023. This was due to this fact an announcement concerning the distinction between inflation within the UK and in different international locations – and based mostly on forecasts, not the present fee.

Nonetheless, that doesn’t stack up both. The principle purpose why some official forecasters count on UK inflation to be slower to fall within the UK is definitely the operation of the Ofgem cap on home power payments. What’s extra, that is one other instance of unfavourable assessments of the financial affect of Brexit having to depend on forecasts, quite than precise information.

Let’s get again to the info. Chart 22 beneath merely reveals the headline inflation charges for the UK, US and eurozone earlier than and after the vote to go away the EU. It’s instantly apparent that the charges haven’t been considerably totally different. If there was any main affect from the Brexit, it isn’t seen in these information.


This additionally applies particularly to meals costs (Chart 23). That is one space the place further commerce prices may need been anticipated to have vital results, however once more there is no such thing as a proof of any significant divergence.


These on the lookout for a big affect from Brexit due to this fact must fall again on various measures of inflation. Adam Posen has argued[39] that we should always give attention to ‘core’ charges that exclude meals and power as a result of these strip out the direct affect of the latest international provide shocks. He then merely asserts that ‘Brexit is the first driver of the excessive and widening inflation differential [on the core rates] between the UK and its European friends’.

That is straightforward to debunk.

For a begin, Posen’s personal chart solely reveals the interval from January 2020. The choice chart beneath takes an extended view. Straightaway you’ll be able to see that core inflation is often greater within the UK than the euro space (even earlier than vote to the depart the EU) and tends to be near the speed within the US (Chart 24).

Chart 25 explores this additional. It reveals the distinction between core inflation within the UK and within the euro space. Within the six years since June 2016 the typical core inflation fee within the UK has been about one proportion level (pp) greater than within the euro space. Within the six years earlier than June 2016, it was about 0.7pp greater.


This does maybe depart just a little one thing to be defined. However Posen merely concludes by saying that ‘any various rationalization to Brexit must provide one other Britain-specific purpose for the scale and timing of the marked divergence in core inflation charges’, with out showing to provide any thought to what these various explanations may be. Listed below are two candidates.

First, the UK financial system has rebounded much more rapidly from the pandemic than most had anticipated, and this has continued into 2022. The UK posted the second strongest GDP progress within the G7 (after Canada) within the first quarter of this 12 months. The most recent buying managers surveys recommend that the UK continues to climate the worldwide disaster comparatively nicely (Chart 26). That is in line with the speculation that greater core inflation within the UK, like within the US, partly displays stronger demand, quite than simply issues on the provision aspect.


The second various rationalization is the variations within the ways in which nationwide governments have responded to the cost-of-living disaster. The UK authorities has centered on supporting households by topping up incomes, primarily by money transfers and cuts in private taxes. In distinction, different governments have been extra prepared to intervene on to decrease costs. This may in fact now change because the new Truss Administration has determined to undertake power worth controls.

France, for instance, has compelled the state-controlled power big EDF to maintain costs down each for households and companies. This will likely not have any direct impact on ‘core’ inflation, however it should assist to decrease the core fee not directly – by stopping the prices of all kinds of companies from rising as a lot as they’d in any other case have finished.

Extra not too long ago, Germany has launched a brand new 9-euro ticket and different reductions on public transport, which contributed to a fall in ‘core’ inflation in June[40]. However these solely lasted three months, with inflation spiking once more in September. Inflation is now broadly anticipated to be greater in Germany in 2023 than within the UK.

This isn’t to say that Brexit has had no affect in any respect on UK inflation. There are three principal channels to think about: the affect of Brexit uncertainty on the forex, the affect on tariff and non-tariff limitations to worldwide commerce, and the affect of the top of free motion and different adjustments on the labour market. However the results of all of those are overstated.

It’s true that sterling fell sharply in 2016, and that that is often attributed to the vote to go away the EU. Variations of Chart 27 are sometimes used to assist this level. This fall most likely did additionally contribute to a pick-up in UK inflation in 2017 (however solely to a peak of round 3%). Nonetheless, the pound has since been comparatively secure and really strengthened (on a trade-weighted foundation) in 2021 and early 2022, so can’t clarify the latest decide up. Even taking account of the weak spot of Sterling in Autumn 2022, the efficient (trade-weighted) change fee is near its common degree since mid-2016.

Furthermore, it’s debatable how a lot the autumn in 2016 was resulting from Brexit.  It pays to take an extended view and have a look at the broad context. As Chart 28 reveals, the autumn in sterling in 2016 (which really started in 2015) solely did just a little greater than reverse the rise between 2013 and 2015.



In fact, the exact timing and extent of the autumn in sterling in 2016 was all the way down to the shock referendum consequence. However this doesn’t imply that sterling wouldn’t have weakened anyway, over an extended interval.

Certainly, even earlier than the referendum, many commentators (together with the IMF[41]) had been already elevating issues that sterling was wanting costly. This was based mostly partly on an unsustainably massive present account deficit, which had widened to six.5% of GDP within the fourth quarter of 2015.

Since then, the present account deficit has been on narrowing development (Chart 29), although the newer information have been closely influenced by Covid distortions. By the fourth quarter of 2021 the deficit has narrowed to 1.2% of GDP, earlier than ballooning out to six.3% of GDP within the first half of 2022 (the latter was resulting from different elements, together with a soar within the import invoice as commodity costs surged and the resumption of dividend funds to abroad buyers, however in fact this didn’t stop the same old suspects from blaming this deterioration on Brexit!).


The upshot is that sterling’s weak spot is simply partly resulting from Brexit uncertainty. And to the extent that it mirrored mistaken fears concerning the affect on the financial system, the pound is more likely to get well.

The second channel is new tariff and non-tariff limitations to commerce that will have made imports dearer. However once more, these are simply exaggerated. Varied enterprise surveys (together with the ONS BICS and the Financial institution of England’s Choice Maker Panel) recommend that further commerce prices resulting from Brexit account for under a small a part of the general upward strain on costs.

This leaves the affect on the provision of labour – which is maybe essentially the most exaggerated of all. An opinion piece by Michael Heseltine (printed within the Monetary Occasions on 18th June[42]) made the placing declare that ‘Brexit has compelled 1,000,000 Europeans to go residence’. That is nonsense.

That is presumably a reference to Workplace for Nationwide Statistics figures, printed in 2021, which instructed that there have been nearly 1,000,000 fewer non-UK-born residents dwelling within the UK on the finish of 2020 than a 12 months earlier. However even when right, this quantity coated each EU and non-EU residents, and might extra fairly be defined by Covid.

What’s extra, the information listed below are unreliable. Different official estimates recommend that internet migration from the EU to the UK has slowed because the 2016 referendum however, except for a small internet outflow within the 12 months to June 2021, it has nonetheless been constructive.

This makes extra sense. In any case, practically six million EU residents have now been granted ‘settled’ or ‘pre-settled’ standing, which incorporates the correct to work within the UK. That is excess of the three.5 million or so who really dwell right here.

Even throughout the pandemic, ONS evaluation[43] means that Germany, France and Italy all noticed larger declines of their working age inhabitants than the UK. This partly displays regular inhabitants ageing, but additionally the restrictions on worldwide journey.

The truth is that there are labour shortages in every single place throughout Europe, and within the US, together with in sectors corresponding to hospitality, street haulage, and aviation[44]. Stress-free visa necessities for extra EU staff would due to this fact solely be a short-term repair – and maybe not even that. Emptiness charges within the UK are additionally much like these in comparable international locations in the remainder of Europe which have equally low charges of unemployment, particularly Germany and the Netherlands.

Even the place companies do cite a scarcity of EU workers, this isn’t essentially resulting from Brexit both. Many different international locations, notably Germany once more, have additionally seen migrant staff depart throughout Covid and never come again. The extra persistent downside for the UK seems to be that Covid has inspired many older staff to retire early.

It’s nonetheless truthful to say that the top of free motion from the EU has most likely contributed to labour shortages in some sectors. However this is just one of many elements – and it has been dwarfed by the affect of the pandemic.


In abstract, there is no such thing as a sturdy proof that Brexit has had a big and lasting affect on inflation, both through the forex, commerce prices, or the labour market. The small variations in inflation efficiency – corresponding to they’re – can simply as simply be defined by non-Brexit elements.

The Impression of Brexit on Northern Eire

Northern Eire has been handled in a different way from the remainder of the UK in leaving the EU. In contrast to Nice Britain, Northern Eire has been regulated by the Northern Eire Protocol which leaves Northern Eire contained in the EU’s Single Marketplace for items and partly inside the EU’s customs union. This implies a customs border on the Irish Sea with customs declarations and controls on items getting into Northern Eire from GB. On the identical time there may be free motion of products from NI into the EU with none tariffs or customs preparations. It additionally signifies that present and future EU rules on the manufacturing of products apply in NI. EU guidelines on VAT additionally apply in NI as do EU rules on state aids. Though the Protocol got here into authorized impact in January 2021 it has by no means been totally operated. Various grace durations meant to ease the transition have been prolonged, basically unilaterally by the UK. These apply to grocery store items (which themselves represent round 60% of imports from GB), medicines, and parcels (together with these from Amazon and different on-line retailers).

The Protocol has turn out to be a significant political challenge inside NI. Unionist events uniformly oppose it and demand its removing. Most unionists regard it as economically damaging however a extra elementary objection is that, of their view, commerce limitations between NI and GB weaken the union and make an eventual united Eire extra possible. Unionists additionally emphasize the undemocratic nature of a Protocol which imposes EU rules and VAT guidelines on NI corporations with none political illustration. Nationalists assist the Protocol as a result of it makes Irish unity extra possible and stress some great benefits of NI corporations having customs-free and tariff-free entry to different EU and the UK.

The Protocol has turn out to be so politically controversial that it appears unlikely that the grace durations will ever finish. The place of the most important unionist celebration, the DUP, is now that the UK and EU can have both the Good Friday Settlement establishments (together with the Meeting) or the Protocol however can’t have each.[45]  To advance this place the DUP withdrew from the NI Government in February 2022 beneath the provisions of the Good Friday Settlement which supplies the primary celebration from every neighborhood blocking rights over the continuation of the NI Meeting and different establishments of the GFA. In an try to influence the DUP again into the Meeting the UK Authorities is progressing a Protocol Invoice via Parliament which can give the facility to UK Ministers to override the provisions of the Protocol as and when needed.

The UK Authorities’s place was described within the July 2021 Command Paper, ‘The Northern Eire Protocol. The Means Ahead’.[46]  This outlined a reformed Protocol wherein customs procedures wouldn’t apply to items from GB destined for NI however may apply to items travelling from GB to the Republic through NI. A two-track system of rules for items manufacturing in NI would permit firms to function beneath both EU or UK rules (the overwhelming majority are at the moment an identical however might diverge in future). The VAT guidelines would revert to the UK system and the position of the ECJ in arbitrating on disputes could be eliminated. That is shut to what’s typically known as ‘mutual enforcement’ beneath which each the UK and Eire would use laws to implement one another’s rules for items crossing the land border in Eire.[47]


The principle change because of the Protocol is to not alter the entry to Irish or EU markets for NI corporations, since entry stays the identical as when the UK was an EU member. As a substitute, the Protocol imposes constraints on exports from GB to NI. A model-based research[48] from the Fraser of Allander Institute in Glasgow estimates that the elevated value of imports from GB, resulting from customs administration, is 8% for a completely carried out Protocol. This will likely deter some imports and result in a diversion of commerce away from GB sources of imports to NI. It should additionally improve prices for producers and shoppers in NI main doubtlessly to a lack of competitiveness for NI corporations and a lack of actual earnings for NI shoppers. The research’s estimate is that the long-term affect on the NI financial system will probably be a lack of 2.5% of GDP[49].

Very totally different outcomes come from a research by the Decision Basis. This report[50] makes use of the mannequin of the LSE’s Centre for Financial Coverage beforehand utilized by Swati Dhingra and others to analyse the affect of Brexit. It is a theoretical quite than data-based econometric mannequin and incorporates a variety of assumptions. The mannequin predicts a small long-term discount on UK GDP of round 1% resulting from new commerce restrictions with the EU. This affect is elevated whether it is assumed that the UK fails to undertake future EU regulatory reforms. Nonetheless, this can be a matter of future UK coverage and must be seen as further to any evaluation of the affect of Brexit or the Protocol.

The Decision Basis research estimates the affect on output and commerce in numerous sectors after which on areas reflecting the various sectoral construction of every area. The calculated lack of export commerce with the EU is big with a predicted fall of 38% by 2030[51]. Since precise information as much as mid-2022 reveals little if any loss in export commerce with the EU and a greater export efficiency with the EU than with non-EU locations, it appears unlikely that this prediction will show wherever near correct. The estimated affect on NI from this research is a lack of 1.1% of output by 2030 with out the Protocol and 0.7% with the Protocol[52]. Therefore the Protocol is assumed to supply a small helpful affect mitigating the general unfavourable affect of Brexit. On this it differs from the Fraser of Allander research which predicts a unfavourable affect. It’s also unclear how the RF consequence for the Protocol was derived.

Precise Efficiency

Each inside Northern Eire and outdoors there was a barrage of opinion, a lot of it arguing that NI has finished nicely out of the Protocol and will get the most effective of each worlds, however with different viewpoints stressing the difficulties induced to merchants. The Monetary Secretary to the Treasury not too long ago emphasised the massive weight of recent administration because of the Protocol together with greater than ten thousand merchants finishing 1,000,000 customs declarations to date[53].

The view that the Protocol helps the NI financial system obtained a lift from London’s prestigious Nationwide Institute for Financial and Social Analysis (NIESR) in its Spring 2022 UK Financial Outlook. This reported that ‘Northern Irish output, as measured by GVA, has barely outperformed the UK common; that is partly an end result of the Northern Irish Protocol and its particular standing within the Brexit preparations, together with higher commerce and funding situations as a part of the EU’s single market and customs union’[54].  Nonetheless, this assertion didn’t specify any interval for this commentary. The ONS information for GVA in Northern Eire reveals that GVA in NI dipped rather less than GB in the primary lockdown in 2020 Q2 and recovered just a little extra quickly. As soon as the Protocol got here into drive in January 2021, GVA in NI grew extra slowly than in GB – 5.5% from 2021 This autumn to 2022 Q2 in contrast with 7.5% in GB (see Chart 30).


Supply: ONS Mannequin-based early estimates of regional gross worth added (GVA) within the areas of England, Wales, Scotland, and Northern Eire

NIESR’S personal chart clearly reveals output NI underperforming because the begin of the Protocol in January 2021, with employment the worst of any devolved area. The higher efficiency of NI was throughout the pandemic in 2020 when NI had simply the smallest decline in comparison with 2019. In 2021 and 2022, following the introduction of the Protocol solely two UK areas grew considerably extra slowly than NI and it’s thus tough to assert the protocol is boosting progress in NI.

It’s true that NI was the one UK area aside from the South East wherein GVA in 2022 Q1 was greater than on the finish of 2019. Since this was wholly resulting from a greater efficiency throughout covid lockdowns, and earlier than the protocol got here into drive, it can’t simply be described as a consequence of the Protocol itself, which is what the NIESR Outlook claims.

Different proof from excessive frequency indicators additionally reveals NI underperforming inside the UK. The composite PMI indices which survey enterprise exercise present progress within the Northern Eire non-public sector constantly underperforming that within the UK as a complete because the begin of 2021, when the Protocol got here into drive. The underperformance has been notably notable over the past 5 months throughout which the PMI surveys present Northern Eire’s output contracting whereas that of the UK has continued to broaden or keep broadly flat (Chart 31)[55].


The ONS’s regional commerce information additionally contradict the concept that NI has both outperformed the remainder of the UK or been ‘shielded’ from the impact of Brexit by the NI protocol. Within the 4 quarters to June 2022, GB exports to the EU had been 23% greater than within the 4 quarters to December 2020 (i.e. the interval simply earlier than the protocol and TCA got here in) in comparison with an 11% rise in NI exports to the EU. A part of the comparatively sturdy GB export efficiency pertains to exports of mineral fuels, however even when we strip these out, the image is comparable: GB exports to the EU up 14% from This autumn 2020 whereas these in NI had been up 8% (Chart 32). So the proof from the UK regional commerce information suggests NI has underperformed GB when it comes to EU exports, regardless of the protocol.

A lot consideration has centered on Irish information apparently exhibiting a big rise in imports from NI and (probably) NI corporations gaining market share in Eire versus GB producers. There are causes for scepticism about this information, nevertheless. Irish information has through the years constantly recorded a lot decrease cross-border commerce flows with NI than the information from NISRA in NI, and among the latest recorded rise in Irish imports from NI could replicate that hole closing resulting from greater ascertainment.

As well as, it’s possible that a big chunk of the upper recorded Irish imports from NI is basically items from GB being re-routed through NI to dodge elevated border paperwork at Irish ports. A big share of the recorded rise in Irish imports is in simply three ‘erratic’ sectors – medical/pharmaceutical, electrical present and ‘unclassified’ gadgets. The rise in medical/pharma imports (which alone is round a 3rd of the full recorded rise in Irish imports from NI) is implausibly massive given the modest scale of that business in NI and is nearly definitely re-routed GB items.


The NIESR Outlook additionally claims that ‘Nearer hyperlinks with the EU, via commerce and in addition doubtlessly labour mobility, have benefited Northern Eire post-Brexit’, however unaccountably on the identical time reveals that ‘employment progress in Northern Eire falls nicely beneath the UK common and isn’t projected to return to pre-pandemic ranges by 2025’. The employment report in Chart 33 reveals that NI has generated jobs as much as the top of 2019 at about the identical fee as England or Wales and quicker than Scotland. however skilled a bigger lack of jobs throughout the pandemic. Within the Protocol interval, because the begin of 2021, there was a minor restoration relative to GB however employment in NI stays nicely (4%) beneath its 2019 peak in contrast to GB the place employment is nearer to full restoration.


Supply: ONS Labour Power Survey


The concept Northern Eire’s freer entry to EU markets will enhance, or has boosted, financial output and progress relative to that in GB has a powerful attraction to many commentators. This has even contaminated the evaluation by NIESR which concludes that output has grown quicker than in GB partly because of the NI protocol. Nonetheless, the information, and even the GVA information cited by NIESR itself, doesn’t assist this conclusion. NI has been one of many UK’s slowest rising areas within the interval because the begin of 2021 throughout which the Protocol has been in drive. NI has additionally the UK’s worst report for employment because the pre-pandemic years.

The financial report over latest years is far influenced by the pandemic, each in 2020 and within the restoration since then. It’s untimely to aim to divine any unbiased affect of the protocol in NI from the information and it might be a number of years earlier than that is potential. That mentioned, essentially the most detailed modelling train of the affect of the protocol to this point, the Fraser of Allander research, factors unambiguously towards the protocol being a unfavourable for the financial system of Northern Eire.

The Metropolis and Monetary Companies


Forward of the 2016 referendum there have been widespread claims that the UK monetary sector would endure badly from Brexit[56], and unfavourable assessments have continued because the vote[57]. On account of the UK leaving the only market and giving up its ‘passporting’ rights permitting quick access to EU monetary markets, we had been informed that jobs and exercise would decamp en masse to the EU. Tens of hundreds of bankers would transfer to Paris and Frankfurt and UK tax revenues could be arduous hit. One notably doom-laden account claimed as much as 230,000 UK finance sector jobs may be misplaced[58]. The comparatively skinny provisions for monetary providers within the UK’s commerce cope with the EU signed on the finish of 2020 sparked a recent spherical of agonising.

Within the occasion, these predictions have proved laughably vast of the mark. There have certainly been some changes by some London-based corporations in response to the modified buying and selling setting. However the tsunami of job losses that was predicted has completely didn’t materialise. E&Y initially claimed 10,500 jobs would go on day one[59], however business estimates now recommend only a few thousand jobs have moved to the EU or been created there resulting from Brexit – and that this course of has largely run its course[60]. Furthermore, complete employment within the Metropolis noticed sturdy progress after the referendum, with an increase of 100,000 staff (20%) from 2015-2020[61].

Nor has the motion of exercise been a technique. Near 1,500 EU corporations utilized for permission beneath the short-term permissions regime to function within the UK, with 1,000 of those planning to ascertain their first UK workplace[62]. A few of these might want to recruit inside the UK.

What concerning the UK’s abroad earnings from monetary providers?  There is no such thing as a proof of any Brexit-related decline in UK monetary providers exports. UK monetary providers exports to the EU had been £5.8bn in 2016 Q1 (the quarter earlier than the referendum), £5.9bn in 2020 This autumn (simply earlier than the UK left the EU single market) and £6.2bn in 2022 Q1. Complete UK monetary providers exports had been £18bn, £19.8bn and £20.9bn in the identical durations (Chart 34). For the reason that UK left the EU single market, monetary providers exports to the EU and non-EU have grown at an identical tempo (5% and 6% respectively).


Supply: ONS

With the arduous proof once more failing to indicate the catastrophe broadly predicted, opponents of Brexit have jumped on press tales purporting to indicate the UK monetary sector dropping out. One among these tales[63] claimed that Amsterdam had overtake the UK because the main share buying and selling hub in Europe. This story was deceptive, referring solely to commerce in EU shares (solely a subset of the worldwide buying and selling in London) and particularly as a result of it didn’t recognise that the majority of London share buying and selling by no means makes it onto the key exchanges however as an alternative happens off-exchange inside massive buying and selling corporations and personal exchanges[64].

Different information such because the Z/Yen survey additionally level to London sustaining, and even strengthening its place as a number one international monetary centre, closing in on New York[65], and by far the main European monetary centre. The BIS triennial survey reveals that the UK has retained its over 40% international market share in FX buying and selling[66].

ONS information on tax revenues from the monetary sector in the meantime affirm the claimed collapse of those revenues has totally didn’t materialise. Complete receipts in 2015-2016 together with PAYE, company tax, the financial institution levy and the financial institution surcharge totalled £27.3 billion, however this complete rose to £31.2 billion in 2021-2022[67]. A broader estimate printed by the Metropolis of London company confirmed UK monetary providers contributing a report £75.6 billion in tax revenues within the 12 months to March 2020[68].



As with so many different areas, the widespread predictions that Brexit would cripple the UK monetary business have proved a mirage, totally unsupported by the precise information. However the significance of the UK monetary providers business as a contributor to the UK’s exterior earnings and tax revenues means there is no such thing as a room for complacency going ahead. The EU will proceed to attempt to entice London enterprise and launch regulatory assaults on the Metropolis to that finish. For that reason, the UK must chart a sensible and clearly unbiased regulatory path, avoiding any publicity to damaging adjustments in EU rules both through formal regulatory alignment or casual shadowing.

This strategy can be important to protect the UK sector’s competitiveness towards its actual international rivals, notably New York. The UK authorities must act boldly to strip away damaging legacy guidelines (together with areas like MiFID and Solvency II) from the interval of EU membership, one thing that they’ve to this point moved fairly slowly on regardless of a plethora of reviews and consultations. As with so many areas, the success or in any other case of the UK monetary providers sector after Brexit relies upon not a lot on the speedy adjustments associated to Brexit however to what the federal government and the sector does afterwards.


Eighteen months after the UK left the EU customs union and single market, apocalyptic predictions concerning the unfavourable affect of Brexit have proved illusory. However, there have been many makes an attempt to indicate that Brexit is damaging, or has broken, the UK financial system. These makes an attempt are based mostly on flawed analyses, usually that includes tortuous makes an attempt to twist the out there information to suit a pre-conceived anti-Brexit narrative.

A cautious studying of the proof reveals that whereas there may be little proof but that Brexit is doing a lot to assist the UK financial system, neither is there proof of a lot hurt. That is vital as a result of it was typically agreed, even by Brexiteers, that there could be preliminary difficulties.

UK progress has carried out comparatively nicely within the post-Brexit interval, in comparison with the opposite massive EU economies. GDP seems to be just about the place it may need been within the absence of Brexit. Makes an attempt to indicate in any other case depend on unconvincing counterfactual analyses, questionable forecasts, and the misinterpretation of measurement points. Equally, whereas funding efficiency has been removed from stellar, makes an attempt to hyperlink its latest sluggishness to Brexit gloss over numerous different vital elements and infrequently depend on deceptive comparisons. The UK additionally continues to draw a disproportionately massive quantity of greenfield international direct funding.

On commerce, there have been reductions in exports and imports to the EU in early 2021 linked largely to the shortage of discover of the brand new commerce preparations and to stock-building forward of the early 2021 deadline. However the decline in commerce proved brief lived, with underlying ranges of UK exports to the EU quickly regaining pre-Brexit ranges and imports comfortably exceeding them.

There have in fact been issues for some corporations, particularly smaller corporations a few of whom might have given up exporting to the EU resulting from new administrative prices but when so, the combination affect appears slight. Notably, the export efficiency even of sectors most uncovered to new commerce limitations corresponding to meals and fish has been surprisingly resilient. All of this was achieved whereas Covid-related lockdowns got here and went which demonstrates the resilience of nearly all of corporations.

The present downside of inflation is affecting most EU and North American economies as a lot because the UK and has little reference to Brexit. The Metropolis of London continues to thrive regardless of transferring a number of thousand jobs to the EU to get round new rules. Equally EU corporations have moved jobs into London.

It is a comparatively good begin to life after Brexit, particularly since few adjustments in rules have but been made. If we assume that future divergence in regulation will solely be made when it assists financial progress within the UK then post-Brexit situations ought to favour the UK. The nice begin confirms that the success in negotiating a free commerce settlement, the Commerce and Cooperation Settlement, in December 2020 was far-sighted even when it got here at the price of the Northern Eire Protocol which stays unfinished enterprise. We’ll by no means know the way the UK financial system may need fared with out an FTA however what we’ve got appears a very good foundation for future prosperity, though that future outdoors the EU will in fact rely upon coverage selections nonetheless to be made.

Lastly, it’s cheap to ask why it has been needed to write down a report debunking the pessimistic research and articles which depict Brexit as a failure.  We all know that 90% of workers in greater training mentioned they’d vote stay in 2016[69] (with 40% saying they may depart the nation if Depart gained). An identical proportion of economists mentioned that the Brexit would harm the UK financial system[70] together with most professors and lots of winners of the economics Nobel prize[71]. Many economics journalists took the identical view. It’s maybe not stunning that a minimum of a few of these observers are eager that their pessimistic predictions must be borne out and are prepared to stretch arguments to breaking level to be able to declare that they’re.

What does this say concerning the economics occupation? We assume that a lot of the incorrect work comes from not interrogating information sufficiently rigorously and settling too rapidly on proof showing to assist the anti-Brexit case. Within the case of the Treasury’s 2016 reviews on Brexit it appears possible that they had been defending a authorities desire for a No vote within the Referendum. That is of greater than historic significance and never solely as a result of some are trying to misread present information to argue for rejoining the EU Single Market. It’s also vital for a variety of wider financial coverage debates. If the occupation can’t be trusted to place ideology apart in financial analyses, then coverage debates will probably be distorted, and the general public might lose much more religion in what Michael Gove known as ‘consultants from organisations with acronyms’.


[1] https://www.ft.com/content material/a31b4b8e-f9fc-4f1e-84c1-3632f194d05a

[2] https://www.theguardian.com/politics/2022/jun/23/does-david-frost-claim-brexit-is-working-stack-up-economic-impact-northern-ireland-protocol

[3] https://www.thetimes.co.uk/article/counting-the-cost-of-the-brexit-vote-six-years-on-rd2pns2wp

[4] https://www.theguardian.com/politics/2022/jun/12/is-brexit-working-four-key-tests

[5] https://www.thetimes.co.uk/articl,e/brexit-outside-the-eu-single-market-isnt-working-l2fsh50b7

[6] https://www.ft.com/content material/7a209a34-7d95-47aa-91b0-bf02d4214764


[7] One disaster killed productiveness – will this one resurrect it? Sunday Occasions Enterprise part July third, 2022.

[8] In these charts utilizing OECD information for actual GDP the figures for the UK in 2020 and 2021 are adjusted in keeping with the ONS advice that present worth values are extra consultant for worldwide comparisons in these years. This displays worldwide variations within the measurement of actual output in public providers together with well being and training. Present worth GDP within the UK grew 2.5% slower than the OECD common in 2020 and 1.1% quicker in 2021.  We now have thus adjusted the UK information for fixed worth GDP in 2020 and 2021 to match the OECD common progress fee for actual GDP multiplied by 0.975 in 2020 and 1.011 in 2021.

[9] Wider comparisons, for instance with the OECD are much less acceptable because of the inclusion of quicker progress Latin American and Japanese European international locations in addition to outliers like Eire the place the headline GDP information is massively exaggerated by revenue shifting by multi-national firms.

[10] What can we learn about the price of Brexit to this point? | Centre for European Reform (cer.eu)

[11] This makes use of materials from a latest Coverage Change article ‘Why the Centre for European Reform is flawed about Brexit – Coverage Change’.  https://policyexchange.org.uk/why-the-centre-for-european-reform-is-wrong-about-brexit/

[12] https://www.intelligencesquared.com/occasions/debate-we-were-right-to-brexit/

[13] https://www.briefingsforbritain.co.uk/why-do-so-many-economists-get-brexit-wrong/

[14]https://www.ons.gov.uk/financial system/grossdomesticproductgdp/articles/internationalcomparisonsofgdpduringthecoronaviruscovid19pandemic/2021-02-01

[15] https://ukandeu.ac.uk/working-paper/expecting-brexit/

[16] https://eprints.lse.ac.uk/83612/1/dp1478.pdf

[17]https://www.gov.uk/authorities/uploads/system/uploads/attachment_data/file/517415/treasury_analysis_economic_impact_of_eu_membership_web.pdf/  https://www.gov.uk/authorities/uploads/system/uploads/attachment_data/file/524967/hm_treasury_analysis_the_immediate_economic_impact_of_leaving_the_eu_web.pdf/

[18] https://www.cbr.cam.ac.uk/wp-content/uploads/2020/08/wp483.pdf

[19] https://www.cbr.cam.ac.uk/wp-content/uploads/2020/08/wp493.pdf

[20] http://www.maxpo.eu/pub/maxpo_dp/maxpodp21-3.pdf

[21] https://obr.uk/field/the-effect-on-productivity-of-leaving-the-eu/

[22] See for instance https://www.piie.com/analysis/piie-charts/uk-and-global-economy-after-brexit

[23] For examples of those sorts of predictions, see for instance UK Treasury (2016) https://belongings.publishing.service.gov.uk/authorities/uploads/system/uploads/attachment_data/file/517415/treasury_analysis_economic_impact_of_eu_membership_web.pdf, UK Cross-Whitehall EU Exit Evaluation https://www.parliament.uk/globalassets/paperwork/commons-committees/Exiting-the-European-Union/17-19/Cross-Whitehall-briefing/EU-Exit-Evaluation-Cross-Whitehall-Briefing.pdf, Bassilakis et al. (2018) https://www.intereconomics.eu/contents/12 months/2018/quantity/5/article/if-nothing-is-achieved-who-pays-for-the-brexit.html, Van Reenen (2016) https://www.brookings.edu/wp-content/uploads/2017/02/brexits-long-run-effects-john-van-reenen.pdf

[24] https://brexit.hypotheses.org/recordsdata/2017/01/The-Macro-economic-impact-of-Brexit.pdf

[25] https://voxeu.org/article/short-term-impact-brexit-uk-exports

[26] http://www.maxpo.eu/pub/maxpo_dp/maxpodp21-3.pdf

[27] https://www.dailymail.co.uk/debate/article-3660275/GERARD-LYONS-Nonsense-Britain-s-going-global-ll-just-fine.html

[28] https://www.reuters.com/article/us-northsea-oil/uk-north-sea-oil-output-to-resume-decline-after-brief-respite-idUSKBN1H213Y

[29] The AHDB reported in August that pink meat exports from the UK had reached report ranges https://ahdb.org.uk/information/value-of-red-meat-exports-from-the-uk-reach-record-levels

[30] https://www.niesr.ac.uk/wp-content/uploads/2022/02/BOX-A-Improved-trade-with-EU-since-Brexit.pdf

[31] https://cep.lse.ac.uk/pubs/obtain/dp1847.pdf

[32] https://obr.uk/efo/economic-and-fiscal-outlook-october-2021/

[33] https://escoe-website.s3.amazonaws.com/wp-content/uploads/2020/07/13160018/ESCoE-DP-2018-09.pdf

[34] https://www.jstor.org/secure/117025?seq=1#page_scan_tab_contents

[35] https://escoe-website.s3.amazonaws.com/wp-content/uploads/2020/07/13160018/ESCoE-DP-2018-09.pdf

[36] https://dailybusinessgroup.co.uk/2022/02/scottish-salmon-exports-to-eu-surge-29/


[37] https://twitter.com/LBC/standing/1547495452416905218?s=20&t=amSLeqKKEdbOrDJe4DYj1A

[38] https://www.bloomberg.com/information/articles/2022-04-27/brexit-explains-80-of-u-k-inflation-former-boe-official-says#xj4y7vzkg


[39] https://www.piie.com/analysis/piie-charts/brexit-driving-inflation-higher-uk-its-european-peers-after-identical-supply


[40] https://www.destatis.de/EN/Press/2022/07/PE22_296_611.html


[41] https://www.imf.org/exterior/pubs/ft/scr/2016/cr16168.pdf#web page=13

[42] https://www.ft.com/content material/d95a0712-6ad0-4a18-858b-dffd8fce7dea

[43] https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/internationalcomparisonsoflabourmarketsoverthecoronaviruscovid19pandemic/2022-06-06

[44] Labour shortages felt throughout Europe – EURACTIV.com

[45] Lord Dodds ‘The Protocol should go’. Briefings for Britain. https://www.briefingsforbritain.co.uk/the-Protocol-must-go/

[46]  https://belongings.publishing.service.gov.uk/authorities/uploads/system/uploads/attachment_data/file/1008451/CCS207_CCS0721914902-005_Northern_Ireland_Protocol_Web_Accessible__1_.pdf

[47] J H H Weiller, D Sarmiento, Sir J Faull, An Provide the EU and UK can’t refuse.  https://verfassungsblog.de/an-offer-the-eu-and-uk-cannot-refuse/

[48] Duparc-Portier G and Figus G (2021) The affect of the brand new Northern Eire Protocol: Can Northern Eire get pleasure from the most effective of each worlds?  Regional Research.

[49] Duparc-Portier G and Figus G (2021) op cit.

[50] https://www.resolutionfoundation.org/app/uploads/2022/06/The-Massive-Brexit_.pdf

[51] https://www.resolutionfoundation.org/app/uploads/2022/06/The-Massive-Brexit_.pdf  p51

[52] Most of this predicted 0.7% discount on output in NI by 2030 derives from the belief that the UK fails to match future EU regulatory reforms that cut back intra-EU commerce limitations.

[53][53] https://www.telegraph.co.uk/politics/2022/09/01/northern-ireland-needs-system-cuts-red-tape-encourages-trade/

[54] https://www.niesr.ac.uk/wp-content/uploads/2022/05/UK-Financial-Outlook-Spring-2022.pdf   p49.

[55] The inclusion of the retail sector within the Northern Eire PMI means comparisons with the UK one should not exactly like-for-like however the sectoral breakdown of the Northern Eire PMI suggests manufacturing and providers are underperforming the equal UK-wide sectors.

[56] See for instance right here https://blogs.lse.ac.uk/businessreview/2016/06/15/brexit-could-bring-a-potential-catastrophe-for-the-uk-financial-sector/

[57] https://www.dw.com/en/the-city-of-london-dodges-brexit-bullet-for-now/a-60406853

[58] See right here https://www.belfasttelegraph.co.uk/enterprise/information/brexit-could-cost-uk-more-than-230000-finance-jobs-35357851.html

[59] https://www.theguardian.com/politics/2017/dec/11/brexit-city-of-london-jobs-ey-dublin-frankfurt

[60] https://www.insurancejournal.com/information/worldwide/2019/02/05/516763.htm

[61] https://www.cityoflondon.gov.uk/supporting-businesses/economic-research/research-publications/city-statistics-briefing#:~:textual content=Therepercent20arepercent20550percent2C000percent20workerspercent20in,morepercent20jobspercent20thanpercent20inpercent202015.&textual content=Homepercent20topercent20onepercent20ofpercent20the,internationalpercent20workforcespercent20acrosspercent20thepercent20country.

[62] https://www.financialreporter.co.uk/finance-news/1500-eu-based-firms-applied-for-fca-regulation-ahead-of-brexit.html

[63] https://www.ft.com/content material/3dad4ef3-59e8-437e-8f63-f629a5b7d0aa

[64] See https://www.spectator.co.uk/article/no-amsterdam-hasn-t-overtaken-the-city

[65] See https://markets.businessinsider.com/information/shares/biggest-financial-centers-london-nears-new-york-2020-9-1029622179?miRedirects=1

[66] https://www.bis.org/statistics/rpfx19_fx.htm

[67] https://www.gov.uk/authorities/statistics/paye-and-corporate-tax-receipts-from-the-banking-sector-2022

[68] https://www.accountancydaily.co/financial-services-sector-pays-record-ps756bn-taxes

[69] https://www.timeshighereducation.com/information/european-union-referendum-nine-out-of-ten-university-staff-back-remain

[70] https://www.brookings.edu/wp-content/uploads/2017/02/brexits-long-run-effects-john-van-reenen.pdf.  https://www.theguardian.com/politics/2016/might/28/economists-reject-brexit-boost-cameron

[71] Economists warn towards Brexit vote | Enterprise | The Occasions

Concerning the Authors

Graham Gudgin is analysis affiliate on the Centre for Enterprise Analysis at Decide Enterprise Faculty, College of Cambridge. He was previously Fellow in economics at Selwyn Faculty and later Director of the Northern Eire Financial Analysis Centre, and Particular Advisor to the First Minister in NI from 1998 to 2002. He’s at the moment Chief Financial Advisor at Coverage Change, an advisor to the Cupboard Workplace and a member of the Modelling Panel on the Division for Worldwide Commerce.

Julian Jessop is an unbiased economist and Fellow on the Institute of Financial Affairs. He has thirty-five years of expertise gained within the public sector, the Metropolis and consultancy, together with stints at HM Treasury, HSBC, Commonplace Chartered Financial institution and Capital Economics. He now works primarily with thinktanks and academic charities and is an everyday commentator within the media.

Harry Western is the pen identify of a senior non-public sector enterprise economist

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