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EXPORT SPOTLIGHT Three years on, what’s the real impact of Brexit on the UK economy? It’s now been three years since the UK left the European Union. Since then we’ve had a pandemic and a war in Europe, prompting an energy crisis, which has made it hard to decipher exactly what the impact of Brexit has been. When the UK pulled out of the single market and customs union in 2021, companies trading with the EU faced new rules, new paperwork and new checks on some goods, prompting fears over what would happen to the £550bn of trade between the UK and its nearest trading partner. There was an initial dip in UK exports to the EU, but once teething problems were dealt with, trade volumes recovered to pre-pandemic levels, according to official figures. But it could be argued trade might have grown more if it hadn’t been for Brexit. When the British Chambers of Commerce surveyed 500 firms recently, more than half said they were still grappling with the new system, and the red tape may have deterred some small exporters altogether. Certainly, a study of customs classifications shows the variety of goods we export has diminished. <strong>Prosper</strong> talked to Alex de Ruyter, a Professor at Birmingham City University and a Director of its Centre for Brexit Studies, for his views on the subject. As I write this article, it is hard to believe that it has been over six years since the UK voted to leave the EU, and over three years now since we formally left the Single Market and Customs Union. At the time, the concerns of those like myself, widely tarred as ‘Remoaners’, were dismissed by Leave advocates as ‘Project Fear’. Yet here we are in 2023 and it appears that most of our concerns of the negative impact of Brexit on the UK economy, and in particular, regions heavily reliant on manufacturing such as the Black Country and wider West Midlands, have been vindicated. While the impact of Brexit on the economy has been ‘shielded’ to some extent by the Covid-19 outbreak in 2020, the subsequent sluggishness of the UK economy compared to its EU rivals post-pandemic is abundantly clear, with growth in the UK having lagged behind that of EU member states France, Germany, Italy and Spain. Indeed, the OECD’s forecast for 2023 has the UK in recession (with real GDP growth year-on-year for 2023 at -0.4%) and outperformed by every other G20 economy except Russia, and the situation for 2024 doesn’t look much better, with year-on-year real GDP growth forecast at 0.2%. Brexit has had a clear impact on inward investment into the UK, with the number of FDI projects peaking at 2,265 in 2016-17 and then declining over the subsequent period. While the figure reported for 2021-22 (1,589) represents a slight increase over the year before, this still represents a substantial drop from the pre-Brexit period as investors re-evaluate the attractiveness of the UK outside of the Single Market. Turning to trade, one of the key arguments promoted by Leavers was that the UK would be able to negotiate its own (better) trade deals outside of the EU, with the ‘great prize’ being that of a trade agreement with the United States, or failing this, a trade agreement with the 11-country Pacific Rim Comprehensive and Progressive Trans Pacific Partnership (CPTPP). Negotiations to enter the latter are still ongoing, while the prospects of a trade agreement with the US appear to have been put on the back-burner by the Biden administration. However, even if these trade agreements were to be secured, they would have a minimal impact on the UK economy, with 50 PROSPER SPRING 2023
LGVs queue to enter the docks at Dover. Trade with the EU is worth £550bn, dwarfing the figures for other areas of the world that of the US only projected to add 0.16% to UK GDP over the long-term (15 years) according to the UK Government’s own analysis, which shows little benefit outside that of niche sectors such as Scotch whisky. In a similar fashion, the CPTPP would only add about 0.1% to UK GDP, and current trade with these countries only accounted for 8% of UK exports in 2019 (less that that sold to Germany). While CPTPP membership may open up some opportunities around digital and services trade, and the UK Government still holds out hope with India as a key emergent economy, our main trade partner remains the EU – which only serves to underlie how trade flows are typically geographically concentrated. In other words, that the nature of supply chains – particularly for manufacturing, on which much of our region’s economy depends – warrant that parts and components can be quickly and easily moved around. It is why key supply chains such as that of the automotive industry tend to be geographically concentrated in ‘world regions’ such as Europe. Toyota, for example, concentrates production on a regional basis, and maintain 14 production companies in South East Asia alone. No merchandise trade agreement between the UK and the North Americas or the Far East can hope to replicate this, given the distances involved. As such, the costs of Brexit to the UK economy have been significant, with the Government Office for Budget Responsibility (OBR) estimating that Brexit will result in a 4% drop in UK productivity relative to having stayed in the EU (think of all the resources now being squandered on customs barriers/declarations and border checks and you can see why), and in turn a 15% decline in exports and imports relative to having stayed in the EU. As can be seen in the Figure 1 below, the UK’s trade performance has worsened in recent years to date 1 . Our own research has highlighted the undue impact of Brexit on smaller firms in the manufacturing supply chain in the Black Country and wider Midlands, with many respondents struggling to cope with increased red tape and the additional cost involved, and consequent lost business as clients in the EU switch business to elsewhere in the EU. In a similar fashion, our research has highlighted the ongoing exposure of firms in the region to a key ‘‘ As can be seen in the chart left, the UK’s trade performance has worsened in recent years to date... ‘‘ number of anchor firms, such as Jaguar Land Rover (JLR). Moving forward then, there is a clear need within the Black Country, and wider Midlands region to which it is extrinsically connected, to understand the nature of supply chain dependency on key regional anchor firms such as JLR. As current news of JLRs purported intention of wanting to construct a Gigafactory for EV battery production in Somerset (or Spain) attests, it spells bad news for the West Midlands if a key component of EV gross value-added is lost to the region. There is then a real risk that thousands of jobs could disappear in the Midlands over the coming decade if production is re-routed elsewhere in the UK, or abroad. 1 Source: https://www.ons.gov.uk/economy/ nationalaccounts/balanceofpayments/ timeseries/ikbj/mret PROSPER SPRING 2023 51
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