Sunderland’s resounding Leave vote announced early on the night of Britain’s 2016 Brexit referendum was a key harbinger of the final result. Last week, six months after the post-EU transition period ended, Nissan’s plans for a giant battery plant as part of a £1bn investment in the city in north-east England were seized on by the government as a sign the UK has kept its attractiveness and competitiveness. A Nissan boss said the company was “moving forward to use Brexit as an opportunity”.
Half a year into this new era, Brexit has not fulfilled prophesies of short-term disaster. The queues of 7,000 lorries in Kent that the Leave-supporting minister Michael Gove forecast as a “reasonable worst-case scenario” even if the UK secured a new EU trade deal from January 1 never materialised. Drugs did not vanish from pharmacy shelves, car factories kept running, bankers have not decamped in their tens of thousands to Frankfurt.
Yet as the Financial Times has reported in recent days, if disruption has not been visible, it has been significant. Nearly one-third of British companies that trade with the EU have suffered a decline or loss of business; 17 per cent that previously did business with the bloc have halted it, for now or for good. Businesses are facing costs from rejigging operations and supply chains. The pandemic, which suppressed business and leisure traffic, masked the upheavals. A reawakening economy will make more apparent the government’s sacrifices of market access in pursuit of sovereignty.
Brexit’s real impact, moreover, was always going to be longer-term. Early evidence supports economists’ consensus views: erecting barriers with the UK’s nearest and largest market — for which there is no comparable substitute — will harm growth over time. Though businesses are adjusting, signs point to an inexorable decoupling. Increased frictions in EU trade, and the costs of shifting to more distant non-EU markets, are prompting many small companies, in particular, to turn inwards on the UK. Businesses overall will benefit less from economies of scale, lowering productivity growth.
The financial services industry has lost less business than feared. But it, too, is turning from the EU, no longer pushing for the equivalence deal it sought — largely because it accepts that the EU will not grant it.
The UK’s regained sovereignty will not offset these losses. Post-EU trade agreements with the likes of Australia provide only a minor economic boost. Hopes for a US deal, intended to anchor a series of such pacts, have receded. Chancellor Rishi Sunak’s exhortation to trade more with China sits uncomfortably with the hawkishness towards Beijing of key-Brexit allies such as the US. Market rules set by China may be less palatable than the EU’s.
Making a true success of post-Brexit Britain will depend far more on a level of economic policymaking expertise that few postwar governments have exhibited. Ways must be found to boost productivity and innovation, and reboot further education to equip workers with the necessary skills.
It will require, too, a gradual reconciliation with the EU. “Getting Brexit done” has brought not a cathartic reset but further tensions, above all over the Northern Ireland protocol. Resolving this impasse will be impossible without compromise by both sides. Bolstering growth will mean reducing frictions in EU trade through further deals on facilitation and market access, ensuring the decoupling is not a permanent state. Boris Johnson’s government, tightly lashed to the Brexit mast, puts a low priority on such steps. Future governments may one day be more willing.