Six Year On: The Economic Impact of Brexit

 

More than six years have passed since the United Kingdom officially left the European Union. Brexit has created structural barriers that further complicate the UK’s economic challenges.  In 2023, the UK remained the only G7 nation that had not recovered to its pre-pandemic level of GDP. Meanwhile, countries within the European Union benefited from healthy intra-EU trade and coordinated recovery efforts, such as the €750 billion NextGenerationEU fund.

 

A significant difference also emerges in business investment. Chronic underinvestment, worsened by Brexit-related uncertainty, has caused UK businesses to be hesitant in adopting new technologies and expanding capacity. For example, foreign direct investment (FDI) inflows dropped by 37 per cent between 2016 and 2022 as multinational companies relocated operations to the EU to preserve access to the single market.

 

Source: https://simple.wikipedia.org

Labour shortages have also strained the UK economy. Before Brexit, businesses could readily meet their labour needs through the EU’s integrated labour market. Since the end of the free movement of labour, critical sectors like agriculture, transport, healthcare and hospitality have all encountered labour shortages, resulting in higher operating costs while limiting output. In contrast, EU economies were able to leverage their integrated labour markets to respond more flexibly to post-pandemic workforce challenges. 

Brexit has also transformed the UK’s trade relationship with its largest trading partner, the EU. Customs checks, rules of origin requirements, and regulatory differences have raised costs and administrative burdens for UK exporters, reducing trade volumes. Sectors dependent on EU markets, such as manufacturing, food exports, and labour-intensive sectors, have been hit harder. Meanwhile, EU countries have maintained smooth trade operations, giving them a competitive advantage. The UK’s sluggish productivity growth, which has persisted since the 2008 financial crisis, stems partly from these issues. Brexit’s structural effects—trade frictions, reduced labour mobility, and low investment—have worsened this problem, causing the UK to trail the EU in productivity improvements. 

Brexit-induced uncertainty has hampered investment, constrained trade, and necessitated costly adjustments in supply chains. Although the Windsor Framework (in relation to Northern Ireland) has alleviated some logistical challenges, it has left broader concerns unaddressed.

Brexit has intensified the UK’s longstanding productivity issues that have persisted since the 2008 financial crisis. Brexit has imposed lasting structural constraints on productivity, such as trade inefficiencies that disrupt just-in-time supply chains, labour shortages caused by ending free movement, increased business costs, and diminished output. These factors lower investment and restrict capital accumulation. Unlike cyclical downturns, Brexit’s negative impact on productivity is enduring and structural. 

Overall, Brexit has been a disaster for Britain. There is no Empire to sell to and no raw materials or cheap labour to extract from. Without a clear plan and outcome, Britain now has potholes on roads, long waiting times at hospitals and low output from farmlands. There is no way back for Britain (to the E.U.). Its best bet is to workout a framework with the Commonwealth.

Reference:

Five Years On: The Economic Impact of Brexit, Hailey Low, Dr Benjamin Caswell, National Institute of Economic and Social Research, 31 January 2025