Brexit is not responsible for our current problems; it’s still an opportunity | Larry Elliot
The British economy is clearly in trouble. Growth has stalled, interest rates are rising and the Treasury is softening the public for another dose of austerity measures.
For some, the explanation for these horrors is simple: Britain is paying the price for its decision to leave the European Union. Forget the impact of the worst pandemic in a century. Forget what Vladimir Putin’s invasion of Ukraine did to energy prices. Brexit is the “gorilla in the room”.
Oh good? Or is this a classic case of confirmation bias, where someone starts with a preconceived opinion and then finds evidence to support their argument? As in: I always said Brexit would be a disaster; the economy is bad; Brexit is to blame and here is the proof.
There’s no doubt that the UK has serious economic problems – including a chronic trade deficit and a poor record on investment – but they predate the Brexit vote in 2016. Britain n has not recorded a merchandise trade surplus since the early 1980s, and inflation-adjusted wages have barely increased since the global financial crisis of the late 2000s. full throttle in 2016, it seems unlikely that more than 17 million people would have voted to leave the EU.
Britain is not the only country facing labor shortages. The German government said earlier this year that it was reducing Red ribbon to facilitate the recruitment of workers from Turkey, and its major industrial sector union, IG Metall, has demanded an 8% increase. France reported 300,000 unfilled vacancies in its hospitality, with a similar image in Spain. According to the Office for National Statistics, at the time of the 2016 referendum, 2,335,000 people born in other EU countries were employed in the UK. At last count, that total stood at 2,389,000. The number is down slightly from a peak of 2,508,000 at the start of 2020, but there has been no mass exodus of workers from the EU.
The UK is not alone in facing cost of living pressures either. The annual inflation rate for the 19-nation Eurozone currently stands at 10.7%, higher than the UK’s 10.1%. US inflation peaked at just over 9% over the summer.
The European Central Bank is pushing interest rates higher because it fears that tight labor markets will lead to a price-wage spiral; the same goes for the Federal Reserve in the United States. The upward pressures on inflation are caused by the pandemic, post-pandemic supply chain bottlenecks and the inability of central banks to act quickly enough when problems started to appear . All of Europe is facing recession this winter, with Germany in particular paying a heavy price for its dependence on Russian gas.
All sorts of dire predictions were made for the UK economy at the time of the Brexit vote: house prices would fall, unemployment would rise by 500,000 and the economy would immediately slide into recession. None of this happened. The economy has slowed down.
Mark Carney, the former Governor of the Bank of England, takes a darker view. He argued that Britain’s economy was 90% the size of Germany’s before Brexit, but only 70% of today.
Professor Jonathan Portes, an economist at King’s College London who is not a fan of Brexit, described the comparison as “absurdity” because it’s about measuring the value of the savings at the prevailing exchange rates. This is not the normal method economists use to assess the relative performance of countries, as comparisons are heavily influenced by currency movements. The pound, for example, is almost 10% higher than it was during a recent low against the US dollar, but that doesn’t mean the UK economy is up nearly 10% from the US economy over the past month.
A recent post by Briefings for Britain, a Brexit support body, offers a different perspective than Carney. He notes that the cumulative growth of the United Kingdom is slightly higher than that of Germany since 2016; that trade with the EU – despite the extra administrative burdens faced by small businesses – has picked up and that Britain continues to attract more foreign direct investment than any other European country.
Of course, it could be argued that the UK would have had even more investment and even more exports had a different decision been made on June 23, 2016. Over the years, the argument of the anti-Brexit camp changed. Where it used to be “Brexit will crash the economy” is now “the economy would be better off without Brexit”.
The Briefings for Brexit (a comprehensive work, worth reading no matter which side of the argument you’re on) says these counterfactual analyzes are wrong. He concludes: “A careful reading of the evidence shows that while there is still little evidence that Brexit is doing much to help the UK economy, there is also not much evidence of harm.”
It rings true. There was no Armageddon. The economy is adjusting, although that process has been made more difficult by the pandemic, war and Liz Truss’ brief tenure as prime minister. If the effects of Brexit tended to be exaggerated, then the impact of the pandemic and the lockdowns that accompanied it tended to be downplayed, perhaps because the most fervent anti-Brexiters also wanted more lockdowns. longer and stricter.
After six years, the case for Brexit remains what it always has been: an opportunity to look at an underperforming economy in a new light and to do things differently. Whether this opportunity will be taken or wasted remains to be seen, but there is no gorilla in the room, just a loud squealing mouse.