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Brexit has made UK less competitive and will make workers poorer over next decade, report says

Brexit has made UK less competitive and will make workers poorer over next decade, report says

The UK’s departure from the EU has not so much had a “rapid, one-off impact”, but will rather bring long-term changes that will leave the country poorer in the decade ahead, a study says.

The Resolution Foundation and the London School of Economics (LSE) say it will take “many years” for the UK economy to adjust fully to the consequences of Brexit.

Their joint report “The Big Brexit” is part of a major inquiry into economic changes facing the country in the 2020s. It comes on the same day that the UK’s Office for National Statistics (ONS), announced a further rise in inflation — to 9.1% in the year to May, a 40-year high — that is fuelling a severe cost of living crisis.

The report says it’s important to disentangle the effects of Brexit from that of COVID-19. But it notes a decline in some aspects of trade that “is not explained by changes in the pattern of global trade during the pandemic,” according to the Resolution Foundation.

“The report notes that the UK also lost market share across three of its largest non-EU goods import markets in 2021: the US, Canada and Japan,” it adds.

In particular, “trade openness” — where trade is measured as a share of GDP (gross domestic product) — shows a much higher fall (minus 8% between 2019 and 2021) than in countries with similar trade profiles, such as France (minus 2%). 

The “Big Brexit” report challenges some of the assumptions made over the effects of the UK’s exit so far.

For instance, it says that while the UK has seen the share of its imports from the EU fall, “the expected relative decline in UK exports to the EU compared with the rest of the world has not materialised” — although the report notes some divergence between UK and EU data.

However, far from being “good news, it instead appears that the UK has experienced a more broad-based loss in competitiveness”, the study says. 

New trading arrangements under the post-Brexit deal that came into force in January 2021 “will lead to big adjustment for some sectors”, the report warns.

“Trade barriers look set to increase by more in agriculture and services (and particularly in more highly-regulated professional services) than in manufacturing,” the think tank predicts. 

“This is bad news for UK exports, as 20% of our services exports to the EU are in the highly regulated category of finance and insurance,” the study adds.

Although lower import competition may help sectors such as agriculture and food manufacturing, it says others such as fishing and metals manufacturing “are set to see some of the biggest output shocks”.

These will not affect the overall nature of the British economy, although the impact will be uneven across UK regions. “The North East (of England), one of the poorest regions in the UK, is highly exposed to the EU, and is expected to be among the hardest hit,” the report says.

“The impact of Brexit on wages will take time to emerge,” the “Big Brexit” study says, estimating that on average they will be 1.8% lower — “equivalent to £470 (€547) per worker every year” — than they would if the UK remained in the EU.

The “long-lasting legacy” of the UK’s departure from the EU will likely mean slower wage and productivity growth over the next decade, it concludes. “Workers across most sectors and all regions should expect further real wage hits as the economy continues to adjust to Brexit.”

The authors say their aim is not to re-run arguments over Brexit that were decided by the 2016 referendum. Rather the report is to improve “understanding of the scale of economic change to come… vital information for policymakers looking to renew the UK’s economic strategy”.

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