Economic crisis intensifies Britons' regret over Brexit

An inauspicious anniversary

Dates provide some symmetry. Days ago, on the anniversary of the Brexit referendum, 23 June, the Bank of England's Monetary Policy Committee raised interest rates from 4.5% to 5%, the highest level in 15 years, and the most significant interest rate hike since February.

The UK's exit from the EU has exacerbated the costs and burdens of British and foreign companies that previously used London as a European base.

The pound's decline by about 10% after the 2016 referendum, to levels around which it has remained ever since has led to higher prices of imported goods and inflation. Imports and exports to and from the European Union were restricted due to new technical barriers and border controls that eliminated the positive effects of duty-free trade, while investment has fallen due to "uncertainties."  

Bloomberg estimates the decline in investment rate from the average recorded by the G7 – Britain, Canada, France, Germany, Italy, Japan, and the US – is around 19%.  The Bank of England puts a different figure on the same kind of loss: £29 billion ($37 billion).

Official forecasts of the Office of Budget Responsibility estimate that over 15 years, the size of the UK economy measured by gross domestic product, would fall by 4%, which is equivalent to a loss of £100bn in GDP and a loss of £40bn in public revenue.

The British government continues to live in denial despite the loss of European markets, the closure of shops, the migration of hundreds of thousands of workers, the suffering of a large majority of local small businesses, and the successive strikes in transport, healthcare, and postal sectors.

If we consider the deterioration of trade and investment relations between the UK and Germany, the largest economy in the European Union, we can understand why German economists have come to call Brexit an economic disaster.

While the UK was Germany's third most important export market in 2016, it fell to eighth place in 2022. It lost its importance as a trade partner, dropping from fifth to eleventh place. More than 1,000 British companies have migrated to Germany since the referendum.  

After being one of the world's largest financial centres for two centuries, London sees banking experts leaving for Paris, among other destinations in the EU, with an estimated 7,000 financial jobs migrating. 

Economic loss and political denial

However, the British government is still in denial as it announces a growth plan described by Chancellor Jeremy Hunt as "necessary, active, and possible thanks to Brexit," even as dozens of shops close and hundreds of thousands of workers migrate, mostly in jobs such as transport, storage, hospitality, and retail.

 

The government seems deaf to criticism of Brexit. Michael Saunders, a former Bank of England policymaker and senior adviser at Oxford Economics said that Brexit is one of the reasons why the UK is now entering an era of austerity, saying that otherwise, "there would probably be no need to raise taxes and cut spending."

Also, the government didn't engage with estimates from researchers at the London School of Economics that the export of various goods from the UK to the EU fell by 30% during the first year of Brexit, likely as a result of small exporters leaving EU markets.

Nor did it make much of a December survey of more than 1,000 businesses, with 77% of participants admitting that Brexit hasn't helped them grow. More than half said they have difficulties adjusting to the new trading rules.

It all means just one thing: missed opportunities in various fields and sectors that would have helped power the nation through and beyond government austerity and rising prices, cutting borrowing requirements while lifting tax intake to finance spending plans, and generating income for vital sectors.

Instead of seeking to limit expenditures to finance, say, the higher wages of healthcare workers, the government could have increased NHS and welfare spending from around £184bn to £327bn a year.

Instead, Britain and its residents suffer from inflation of 8.7%, interest rate hikes of 5%, soaring food and good prices of 19.7%, and higher mortgage payments after borrowing costs rose 13 times in a row.

Poorer people hit harder

The biggest burden is on poorer households. With food bills rising at its fastest rate in 45 years, median household incomes are expected to fall by an additional 6% over the next two years. It means standards of living will fall below pre-pandemic levels in the worst performance by any major economy.

At a time when the central bank seeks to combat inflation, which reached 8.7% in May, by continuing to raise interest rates, in order to reduce consumer spending, and consequently prices, the skyrocketing rise in food and goods prices continues at a rate of 19.7%.

Meanwhile, borrowers facing the continuous interest rate hikes designed to get inflation down must pay more and more to service their home loans, with the mortgage market in a state of crisis as fixed-rate deals are pulled and repriced higher. This means incurring additional costs to their incomes after borrowing costs rose 13 times in a row – a move that is exacerbating the mortgage crisis.

No wonder British Foreign Secretary James Cleverly rejected some economists' suggestions that the only way to reduce inflation is "to enter a recession deliberately" – he cited the urgent need for economic growth, while "raising interest rates doesn't help."

Brexit mistake

It's also no wonder that more than 50% of Britons polled by YouGov in March believe that the UK made a mistake by leaving the European Union, while an Ipsos poll in January found that about half of Britons believe that Brexit made their daily lives worse. 

In another survey,  by Deltapoll and published by the Tony Blair Institute, 80% of British voters believe the UK should strengthen its relations with the EU, while 43% call for the country to re-join the bloc, and 13% prefer only a partial return – to the single European market rather than the entire EU.

Today, with the pain of rising interest rates, as the voices rise again from the majority of voters to re-establish economic relations with the EU and after all of Brexit's broken promises, is it time for the government to recognise the pain it has inflicted, or will the current economic malaise extend and get even worse over time, turning into a chronic crisis that's difficult to overcome?