Covid pandemic masks impact of Brexit on UK economy


More than five years after the EU referendum, Britain remains more divided than ever on the question of whether the UK should join the bloc.

However, economists on both sides of the argument agree on one thing: the new rules and regulations introduced by Britain’s new relationship with Brussels have wreaked havoc on Britain’s economy, affecting trade and exacerbating labor shortages.

But the problem for pro and anti-EU economists as they try to assess the effects of the first six months of the UK-EU Trade and Cooperation Agreement is that the image of trade and employment has been overwhelmed by the economic impact of Covid-19. 19 pandemic.

Judging the long-term effects beyond the coronavirus crisis is also uncertain – as is trying to find the economic benefits of the UK’s break with Brussels.

John Springford, deputy director of the Center for European Reform think tank, said: ‘Generally Covid has overwhelmed the economic data making comparison difficult so we can’t really disentangle the Brexit effect.

The most important area where the effects of Brexit quickly became visible was in trade in goods. After storage in December, the additional customs and security checks put in place from 1 January resulted in a fall sharply during the first month of the year before recovering some of the lost ground.

But while there is no doubt that trade has been affected by Brexit, the full picture depends entirely on the statistics used. UK exports to the EU were 5% lower in April than last December, according to the UK’s Office for National Statistics, but down 24% when measured by Eurostatthe official EU statistical office, during the same period.

There are always differences in trade statistics, but economists have said they are extreme.

Equivalent figures for imports showed the value of trade in goods from the EU to the UK was down 19% over the same period, according to the ONS, while Eurostat recorded a drop of 13 %.

These trade differences are important, according to Thomas Sampson of the London School of Economics. “If the UK [ONS] the data is accurate, exports to the EU did surprisingly well after the January drop,” he said.

Monthly trade in goods bar chart (% change, Dec 2020 to April 2021) showing assessment of Brexit trade effects dependent on statistics used

Statistical agencies are busy trying to resolve the discrepancies. The ONS itself has now ruled out seasonal adjustment and intra-company trade issues as reasons. The detailed figures suggest that the differences mainly relate to trade in cars and other miscellaneous manufactured goods.

“We don’t have conclusive answers,” said Matt Hughes, senior statistician at the ONS. “But increasingly we’re looking at the issue of measuring country of origin versus shipping.” Under post-Brexit trade deals, the UK measures exports to the country to which they are shipped, while the EU seeks to define trade with the country of origin of the goods or their final destination.

This means that a car exported from the UK to Rotterdam, the Netherlands and then shipped to a country outside the EU would be considered an export to the EU in the ONS statistics, but not a UK import in Eurostat figures.

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Even with these uncertainties about trade figures Julien Jessop, an independent economist who describes himself as a “Brexit optimist”, said that so far the economic effects of the new rules have been negative. “We know that an increase in trade barriers will reduce trading volume and this is clearly confirmed in the data, but the initial hit seems to be wearing off,” Jessop said.

The uncertainties have been such that no one is yet revising their professional judgment on the long-term effects of Brexit, which most economists and the UK government’s independent watchdog expect to drop the level of gross domestic product by around 4% compared to staying inside the bloc.

Professor Jonathan Portes, of King’s College London, said the long-term economic forecast so far seemed accurate. “Economists were expecting a reasonably significant trade effect, but not something catastrophic and that’s what seems to have happened. It’s far too early to say what the long-term effect will be, but it there’s no obvious reason to change the model-based estimates from what we’ve seen so far,” he said.

After the one-off effects of the introduction of barriers, the question for years to come will be to what extent supply chains across the Channel break down and the UK becomes a less attractive place to invest.

The other key change so far has been the movement of workers, with new restrictions introduced limiting the rights of EU citizens to come to the UK and work, raising concerns about labor shortages -work.

Line chart of UK vacancies (thousands) showing vacancies returning to pre-pandemic levels

Professor Alan Manning, former chairman of the Migration Advisory Committee, said the many reports of labor shortages were the result of a “mixture of Covid and Brexit” and that the fact that there had similar trends in other countries suggested it was not just an effect of Brexit. “Brexit helped and did not improve shortages,” he said.

Manning added that some sectors needed to realize that the days when they could expect labor to be available were over and that in some sectors, such as social care, employers would have to pay more for s ensure they had staff available.

While the evidence of Brexit’s negative impact is clear, the benefits of bloc separation are more elusive. The UK quickly canceled many trade deals with countries that had already had deals with the EU and is on the verge of signing with other countries such as Australia.

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Few economists believe these will provide a significant boost to the UK economy, with the government’s impact assessment on the Australia deal suggesting a total gain of just 0.02% in the long term .

But Jessop hopes further gains will emerge now that “uncertainty [surrounding Brexit] has been lifted”.

“The faster deployment of vaccines indicates the possibility that there may be future gains from regulatory independence,” he added.


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