- author, Dharshini David
- roll, BBC News correspondent
Three years have passed since the United Kingdom left the European Union.
Since then, there has been a pandemic and an energy crisis – which makes it difficult to understand the impact of Brexit on the British economy.
Recently released official data indicates that the impact has been significant – but not in the way many expected.
With the UK leaving the single market and the EU customs union in 2021, businesses trading with the EU have had to contend with new rules and bureaucracies for some goods.
That raised concerns about the impact of Brexit on the roughly $670 billion in trade between the UK and the European Union – its closest trading partner.
Initially there was a decline in UK exports to the European Union. But after some adjustments, trade volumes have returned to pre-pandemic levels, according to official data.
However, it can be argued that trade would have grown more had it not been for Brexit.
A recent survey of 500 companies by the British Chambers of Commerce found that more than half of them still struggled with the new rules.
Bureaucracy may have brought business to an end for some small exporters.
Another study showed that the variety of goods exported by the United Kingdom has diminished.
Something similar happens with imports. Volumes have been restored to pre-pandemic levels.
But researchers at the London School of Economics say that imported food prices from the European Union (such as tomatoes and potatoes) rose by up to 6% in 2020 and 2021. This happened even before the recent spike in inflation.
On the one hand, this has increased the competitiveness of British food producers, with gains of up to $6 billion.
But when you look at the bigger picture, a different picture emerges.
Most countries experienced a collapse in international trade at the height of the pandemic.
Since then, the recovery in trade relations has been better in other G7 countries than in the UK.
The G7 brings together – in addition to the United Kingdom – Germany, Canada, the United States, France, Italy and Japan.
The proportion of international trade within the British economy decreased.
In the UK, imports and exports have not recovered as quickly as in other countries.
The UK lags behind in foreign trade.
What about the new trade agreements signed by the UK? They can contribute to better business relations – but it is still too early to understand the impact.
So far, 71 business deals have been closed, which is rapid progress.
But the vast majority of these agreements reproduce terms that already existed when the UK was still part of the European Union.
The UK has signed new agreements with Australia and New Zealand, but the impact of these negotiations is minimal and may take years to come.
Moreover, the agreements are controversial. UK farmers say they stand to lose from them.
There are still ongoing negotiations with India and the Pacific states. Despite the delay in reaching an agreement, some analysts believe that this delay could lead to better terms for the UK.
Trade agreements with some of the biggest international players, such as the United States and China, remain a long way off.
The amount of corporate investment in plant, training, equipment and technology is also affected by the relationship with the EU.
But investment in the UK has stagnated since the 2016 referendum.
Companies remain cautious about their economic prospects.
Investing wasn’t doing well even before 2016, but if it continues its pre-referendum trend, it could be about 25% higher than it is now, according to one consultancy.
Economists still do not understand this phenomenon. Some – such as the International Monetary Fund – have suggested that the uncertainty surrounding Brexit has deterred many investments.
Entrepreneurs such as Richard Branson of the Virgin Group are among leaders who say the cost of Brexit bureaucracy will discourage them from investing in the UK.
Brexit advocacy group Four Business Briefings says the numbers are misleading and there is no evidence of a Brexit-related impact on investment.
In the end, however, the lack of investment means that the British economy is less efficient than it could be.
Brexit also changed the rules around the free movement of labor and created a points-based immigration system.
This led to complaints from some sectors that were not expected to have problems.
Fashion chain Next manager Simon Wolfson and Wetherspoons pub chain manager Tim Martin have backed Brexit – but both have called for the UK to allow more migrant workers.
A study by the Center for European Reform and UK consultancy A Changing Europe indicates that there are 330,000 fewer workers in the UK as a result of Brexit.
That may only account for 1% of the total workforce – but sectors like transportation, hospitality and retail have felt the difference.
The shortage of workers causes prices to go up for consumers.
Some argue that these restrictions will cause companies to invest more in training their employees.
But in the financial services sector, 7,000 jobs may have been destroyed by these restrictions, according to a report from the British Parliament.
However, this figure is far below the pre-Brexit forecast of 70,000 job losses.
The UK is the only rich economy that is still smaller – poorer – than it was before the pandemic. One factor in this problem may be Britain’s exit from the European Union.
The Office for Budget Responsibility, which oversees UK government accounts, believes the UK economy is 4% smaller due to Brexit.
For many voters, Brexit is more about national sovereignty than economics. But much remains to be done.
Some points of Brexit remain unresolved – such as the Northern Ireland Protocol, permanent rules for sectors such as financial services, science collaborations, and ways to reduce bureaucracy.
The gains that can be made in these areas depend not only on economics – but on politics as well.
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