Was Brexit Worth It? An Economic Perspective
The United Kingdom (UK) held a referendum on June 23, 2016, and 51.89% of its voters decided that the nation would leave the European Union (EU). The government followed through on this, and the UK officially divorced the EU on January 31, 2020.1 Now that it’s been three years, let’s take a look at the Brexit fallout from an economic perspective on three fronts: cash on hand, free trade, and inflation.
Where’s the Surplus?
The “Vote Leave” camp made a series of promises to the British people leading up to the referendum. One of the most significant was that Britain sent £350 million (roughly $449 million) a week to the EU, and those funds could instead support initiatives like the national health system. Years later, the UK does not have a cash surplus at all; instead, Brexit has left its economy 5.5% smaller, according to the nation’s Centre for Economic Reform. In fact, the UK has trailed behind almost all major economies and the International Monetary Fund predicts it will be the only one of the G7 economies to shrink in the near future.2 Ouch!
The UK is “Controlling” its Own Trade Destiny
When it comes to trade, the UK has alienated its biggest trading partner, the EU. Think about it, even in the most amicable divorces, is your relationship with your now ex-spouse really ever going to be the same? The two parties inked a Trade and Cooperation Agreement in 2020, but the biggest loser of this agreement was the UK as its exports to the EU dropped by an average of almost 23% in the first fifteen months following the deal. The variety of products the UK exports to the EU also dropped to the tune of 42%.3 One of the biggest prizes, promised by Brexit enthusiasts, such as former Prime Minister Boris Johnson, was a free trade deal between the US and UK. Such a deal has yet to materialize with Prime Minister Rishi Sunak admitting a few days ago that, “For a while now, [the deal] has not been a priority for either the U.S. or U.K.”4
Inflation: Not Just a British Foe
The “I” word has been plaguing nations all over the globe. The United States, for example, had an inflation rate of 6% in early 2023, which is quite high based on historical standards. The UK, however, was significantly higher than that, landing at 10.4% in February 2023.5 Can it be that the UK’s inflation woes are simply unrelated to Brexit since the rest of the world has also fallen victim to rising prices? Former Bank of England governor, Mark Carney, says no. Carney told the Telegraph in an interview that the UK’s separation from the EU is partly to blame for stubbornly high inflation levels in the country, much of which is due to Brexit-related supply shortages. “We laid out in advance of Brexit that this will be a negative supply shock for a period of time and the consequence of that will be a weaker pound, higher inflation and weaker growth,” states Carney. “There’s no joy in saying: well, ‘we told you so’ because people are having to live with that reality.”6
Indeed, the reality is quite grim. Economists tell Bloomberg that the UK faces a sharp recession and significant job losses if interest rates, which are expected to rise in the coming weeks, hit 6%. Household budgets are strained and corporate insolvency is on the rise.7 At the same time, Boris Johnson, who is awaiting a potentially scathing parliamentary report stemming from an investigation into his behavior as prime minister, has decided to resign his seat in that legislative body. The real question now is – should Brexit go with him?
1 “What is Brexit?,” Government of the Netherlands,
https://www.government.nl/topics/brexit/question-and-answer/what-is-brexit (accessed June 17, 2023).
2 W. Mata, “Five big Brexit promises – and what we got instead,” Independent, February 21, 2023, https://www.independent.co.uk/news/uk/brexit-referendum-vote-timeline-b2286381.html.
3 “Brexit changes caused 22.9% slump in UK-EU exports into Q1 2022 – research,” Aston University, November 28, 2022, https://www.aston.ac.uk/latest-news/brexit-changes-caused-229-slump-uk-eu-exports-q1-2022-research.
4 E. Webber and G. Lanktree, “Sunak kills talk of US-UK trade deal as digital hopes grow,” Politico, June 7, 2023, https://www.politico.eu/article/rishi-sunak-kills-talk-of-us-uk-trade-deal-as-digital-hopes-grow/.
5D. Hyatt, “Think Inflation Is Bad in the US? See What Other Countries are Dealing With,” Investopedia, March 22, 2023, https://www.investopedia.com/inflation-rates-us-and-the-world-7369986.
6M. Burton, “Mark Carney Blames Brexit for UK Inflation, Telegraph Says,” Financial Post, June 17, 2023, https://financialpost.com/pmn/business-pmn/mark-carney-blames-brexit-for-uk-inflation-telegraph-says.
7P. Aldrick and L. Cherry, “Britain Faces Recession and Flood of Job Losses If Rates Hit 6%,” Bloomberg, June 17, 2023, https://www.bloomberg.com/news/articles/2023-06-17/britain-faces-recession-and-flood-of-job-losses-if-rates-hit-6#xj4y7vzkg.