Brexit has shattered Britain’s economic foundations
Two years have passed since the former prime minister Boris Johnson signed his Brexit trade deal , and proclaimed that Britain will become “prosperous, dynamic and contented” when it had completed its exit out of European Union.
The Brexit deal will allow UK businesses to “do even more business” with the European Union, according to Johnson and will let Britain free to negotiate trade agreements around the globe while continuing to seamlessly export into the EU market with 450 million customers.
In the end, Brexit has hobbled the UK economy, but it’s as the sole member in the G7 — a collection of developed economies which also comprises Canada, France, Germany, Italy, Japan and the United States — with an economy smaller than what it was prior to the pandemic.
Uncertainties over the future trade relationship with The European Union, Britain’s largest trading partner, have slowed investment by businesses. In the third quarter of 2013 was 8 percent below levels prior to the pandemic, despite a trade agreement between the EU and UK having been in force for more than two years.
The pound has also taken the brunt of this, rendering imports more expensive and fuelling inflation. It has also failed to stimulate exports, while other regions of the world have seen a post-pandemic trade expansion.
Brexit has created restrictions on trade for UK companies and foreign firms who utilized Britain as an European base. This is affecting imports as well as exports, cutting investments and creating labour shortages. This has further aggravated Britain’s inflation issue, affecting businesses and employees.
“The most plausible reason as to why Britain is doing comparatively worse than comparable countries is Brexit,” according to L. Alan Winters, co-director of the Centre for Inclusive Trade Policy at the University of Sussex.
The gloomy mood in the UK economy is reflected in the striking workers who are protesting in ever greater numbers over wages and conditions because the biggest inflation rate since the past decade eats away at their earnings. In the meantime governments are cutting expenditure and raising taxes to fill the gap in its budget.
Although Brexit isn’t to blame for the crisis in cost-of-living in Britain however, that has contributed to making the issue more difficult to fix.
“The UK chose Brexit in a referendum, but the government then chose a particularly hard form of Brexit, which maximized the economic cost,” said Michael Saunders, a senior advisor of Oxford Economics and former Bank of England official. “Any hope for economic upside from Brexit is pretty much gone.”
Far from delivering on former Prime Minister Boris Johnson's promise of a "propserous, dynamic and contented" Britain, Brexit has hobbled the UK economy. https://t.co/hx51ArUaSN
— Strawberry NG News (@StrawberryNG) December 24, 2022
Companies calculate the cost
While Britain has voted to quit the European Union in June 2016 but its departure out of customs union and the common market ratified on the 24th of December 2020 which was the day that the two parties came to an agreement on to sign a free trade agreement.
The Brexit agreement, also called the Trade and Cooperation Agreement, took effect on January 1st, 2021.
It lifted tariffs on the majority of items, but added a myriad of non-tariff barriers including border controls as well as customs and customs controls customs checks, import duties , and health inspections on animal and plant-based products.
Prior to Brexit farmers in Kent could transport the potatoes in a large truck to Paris in the same way as they could send the potatoes to London. These days, they aren’t.
“We hear stories every single day from small businesses about the nightmare of forms, transportation, couriers, things getting stuck for weeks at a time… the epic length of the problems is just gobsmacking,” said Michelle Ovens, the founder of Small Business Britain, a campaign group.
“The way things have panned out in the last two years has been really bad for small businesses,” Ovens stated to CNN.
Researchers from The London School of Economics estimate that the range of UK exports towards Europe European Union declined by 30 percent during the first year following Brexit. They suggested that this could be due to the fact that small exporters had left smaller EU markets.
Let us look at the case from Little Star, a UK company that produces jewellery for children. The company’s growth began within the Netherlands and the company was planning to expand into France and Germany in the near future. But , following Brexit has come into effect, only two of the more than thirty of the Dutch customers are able to manage the costs and paperwork needed to get stocks with the firm.
Items that were once able to take just two days to be shipped have now taken three weeks to deliver as the import duty and sales tax make it difficult to be competitive with European jewelers, says Rob Walker, who co-founded the company with Vicky Walker, his spouse Vicky In the year 2017. The business is now looking to America United States for growth opportunities.
“Isn’t it mad that we have to look to the other side of the Atlantic to do business, because it’s so difficult to do business with people 30 miles away?” Walker explained.
An British Chambers of Commerce survey of over 1,168 companies released this month revealed that 77% of them said that Brexit had not helped businesses increase sales or expand their business. Over half reported that they are finding it difficult to change to new regulations of trading in goods.
Siteright Construction Supplies, a manufacturer located in Dorset and Dorset, has said to the Chamber that the import of elements from European Union to fix broken machines has turned into a cost-intensive as well as “time-consuming nightmare.”
“Brexit has been the biggest-ever imposition of bureaucracy on business,” according to Siteright.
Nova Dog Chews, a manufacturer of dog food It said it would have been unable to access all of its EU trade if it had not established an EU base. “This has cost our business a huge amount of money, which could have been invested in the UK had it not been for Brexit,” Nova Dog Chews said.
An UK government spokesperson said to CNN that the country’s Export Support Service has offered exporters “practical support” on the implementation of the Brexit agreement. The agreement will be “the world’s largest zero tariff, zero quota free trade deal,” the spokesperson said. “It secures the UK market access across key service sectors and opens new opportunities for UK businesses across the globe.”
Permanent harm to trade
Britain will not be able to make up for what it lost when it loses access to what is the most extensive trading bloc.
The only new and significant trade agreements the UK has concluded after leaving from the European Union, which did not simply change the agreements it had while an EU member, were to Australia as well as New Zealand. According to the government’s own estimates the new trade agreements will have little effect on UK economy, as they will increase GDP over time by only 0.1 percent and 0.03 percent, in both cases.
In contrast to it is the UK Office for Budget Responsibility that produces estimates of the economy for government officials, anticipates that Brexit will reduce the output of Britain in 4% for the course of 15 years, compared to staying within the bloc. Imports and exports are predicted to be 15 percent lower over the long-term.
The initial data suggests this is being carried out. Based on the OBR report, in the 4th quarter in 2021 UK exports of goods toward countries in the European Union were 9% lower than levels in 2019, and imports to Europe European Union 18% lower. Exports of goods to countries outside the EU were down 18% from levels in the year 2019.
It is said that the United Kingdom “appears to have become a less trade-intensive economy, with trade as a share of GDP falling 12% since 2019, two and a half times more than in any other G7 country,” the OBR stated in its March report.
The decrease in exports to countries that are not EU members could indicate that UK firms are less competitive in the face of rising costs for supply chain management due to Brexit According to Jun Du, an economics professor at Aston University in Birmingham.
“The UK’s trading ability has been damaged permanently [by Brexit],” Du said to CNN. “It doesn’t mean it can’t recover, but it’s been set back for a number of years.”
The research conducted by the Centre for European Reform, an think tank, has estimated that for the 18 months from June 2022 to the present, UK goods trade is less than what it would be were Britain continued to be part of the European Union.
The economy is down 11% and the GDP is 5.5 percent lower than what it would have been, causing our economic system PS40 billion ($48.4 billion) in tax revenue annually. This is enough to cover more than three-quarters of cuts to spending and tax hikes which UK Finance Minister Jeremy Hunt announced in November.
A severe economic cost
The United Kingdom is projected to be among the most underperforming economies next year in comparison to developed nations.
The Organization for Economic Cooperation and Development believes that for the UK economic growth to be reduced by 0.4 percent, surpassing the 1% of sanctions imposed on Russia. The GDP of Germany is expected to be 0.3 percent lower.
The International Monetary Fund forecasts growth of only 0.3 percent for UK GDP in the coming year, beating just Germany, Italy and Russia which are forecast to see a contraction.
Both institutions believe that an increase in rates of interest will impact business and consumer spending in Britain.
Based on the Confederation of British Industry, one of the most prominent business groups the decline of private sector employment picked up in December, and has decreased for five quarters in a row.
The trend downward “looks set to deepen” in 2023, chief economics at CBI Martin Sartorius said in an email.
“Businesses remain facing many challenges, with the rising cost of labor, shortages and a slowing demand all contributing to a grim outlook for the coming year. “