The Impact of Brexit in Six Charts: From Trade Slumps to a Weaker Pound

The Impact of Brexit in Six ChartsFrom Trade Slumps to a Weaker Pound

TJ Coles reviews the ways in which leaving the EU has made Britain poorer

Northern Ireland Minister Brandon Lewis said in September 2020 that the Government’s Internal Markets Bill (which passed into law a few months later) would “break international law in a very specific and limited way”.

It has been widely reported that under the act, ministers are permitted to issue binding legal instruments on trade that could violate the Northern Ireland Protocol, which carves out a unique trading arrangement between Northern Ireland and the EU. Less commented upon is the observation by Edinburgh University’s Joanna George, who writes that the act “also permits the breach of any international obligation that may arise in the creation of regulations”.

Now, the Government is attempting to put the final nails into that coffin via its Northern Ireland Protocol Bill. The House of Commons Library says: “This Bill empowers ministers to make parts of the Protocol and related parts of the Withdrawal Agreement ‘excluded provision’, stopping their direct effect in UK law”.

In effect, this would allow the Government to unilaterally breach aspects of the Protocol, and change the trading relationship between Britain, Northern Ireland and the EU.

This is proving controversial among Conservative MPs, many of whom abstained on the recent second reading of the bill, which passed by 295 votes to 221.

Despite telling Parliament that, if enacted, the proposed legislation would “diminish [Britain] in the eyes of the world,” former Prime Minister Theresa May did not vote against the second reading, but instead abstained. Former Health and Social Care Secretary Matt Hancock, whom last June resigned from the Cabinet after breaching his own social distancing rules, authored an article in The Times to rally the Tory faithful by explaining that the Northern Ireland Protocol Bill is “both legal and necessary”.

There are economic and political reasons why the UK is trying to ram through legislation that breaches its international commitments. Not least that the Northern Ireland Assembly is once again in paralysis due to protests over the Protocol, while trade between Britain and Northern Ireland is now increasingly inhibited.

There will almost certainly also be economic repercussions of this legislation, which could trigger a trade war between Britain and Europe.

So now is a good time to reflect on how well Brexit has gone, macroeconomically, for the UK, amid right-wing claims that the project is delivering spectacular benefits.

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Inflation

After Russia’s invasion of Ukraine earlier this year, global prices – notably energy prices – began to rise.

In addition to COVID and the war, Britain suffers from the self-inflicted wound of Brexit. By April, inflation in Italy was 2%; France 2.6%; Germany 3.8%; and a whopping 5.4% in the UK.

The Peterson Institute for International Economics says: “Brexit is the primary driver of the high and widening inflation differential between the UK and its European peers.”

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Trade Balance

Back in 1997, with Labour in power, Britain enjoyed a relatively equal balance of trade with the EU: we were exporting as much as we were importing. The gap has been widening ever since; particularly impacted by the 2016 Brexit referendum, the COVID pandemic, and our subsequent withdrawal from the EU.

Russia’s invasion of Ukraine appears to have made Britain even more dependent on EU imports, and we now endure a trade deficit with the EU worth £10 billion, importing £26 billion-worth of goods but exporting just £16 billion.

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Exports

It was reported in late March that the volume of Britain’s exports had fallen by 14% as the ‘rest of the world’ saw an increase of 8.2%, despite experiencing the same COVID-and conflict-driven supply shocks. Michael Saunders, external member of the Bank of England’s Monetary Policy Committee, says that Brexit has “reduced the economy’s openness, in trade and labour mobility”.

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EU Trade

By 2019, Britain’s total trade in goods with the EU exceeded £110 billion. Non-EU total trade in goods was below £100 billion. In the first few months of 2020, trade (including across the EU) crashed due to the pandemic. Towards the end of the year, Britain’s EU and non-EU total trade in goods rebounded, but neither reached pre-lockdown levels.

Moreover, by early 2021, UK-EU total trade in goods remained well below 2019 levels, at £82 billion. Although non-EU trade (£94 billion) exceeded total EU trade, it never reached its pre-lockdown levels and was far lower than total trade with the EU during 2018 and 2019 – in effect failing to compensate for the economic cost of leaving the bloc.

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Exchange Rate

The pound remains stronger than the euro, but has decline in value over time. Two decades ago, the average was nearly £1 to €1.8. As the euro gained strength internationally, the exchange rate shifted to £1 to €1.5. The global financial crisis in 2008 sunk the exchange rate to near-parity. But the pound regained its strength, averaging £1 to €1.4 prior to the referendum in 2016.

After this point, the value of the pound dropped to between €1.1 and €1.2, where it remains today. 

As economist Andrew Gibson explains, the automatic rates that appear when using search engines may give the public a false reading because they are inter-bank rates, not customer rates. He puts it simply: “The pound to euro rate was €1.30 prior to the Brexit referendum. It hasn’t been back to those levels since”.

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Brexit Mythology

On 24 June this year, the Daily Mail opened an editorial comment article with the following: “Six years ago today, this country woke to joyous news. We had taken the momentous decision to leave the European Union and stride confidently into the world beyond”.

The article was a thinly-disguised attempt to push the Conservatives into voting for the Northern Ireland Protocol Bill, saying that more needs to be done to achieve a ‘real Brexit’.

After claiming that Johnson, as opposed to the NHS, successfully rolled out the vaccine while the EU allegedly squabbled, the article went on to say that the UK’s current economic woes are “not all Boris Johnson’s fault. Since our departure, he’s been distracted by a conveyor belt of crises”.

Many of the above charts explode that claim. Indeed, all global leaders have steered their ships of state through the same disasters, while Britain lags behind.

In another apparent effort to radicalise Conservative MPs, the Express attributed this economic decline to Johnson’s supposedly soft Brexit. The article platforms former Brexit Party Member of European Parliament, Ben Habib, who says that legislation like the Northern Ireland Protocol means that Brexit is not really done.

But the public has not been fooled. YouGov has this week released an update of its Brexit tracker, showing that just 16% of people polled think that Brexit is “going well”. In contrast, 54% think that it is going badly.

Ordinary people, many of whom voted Leave, now feel the very real economic consequences against which the hedge funders and asset managers who supported Brexit are shielded.

By whipping up fear, hatred, and hysteria against the EU and migrants, the oligarch-owned media and the illiberal elite have damaged the economic prospects of most Brits, merely to protect their own power.