What happened
Rachel Reeves, the UK Chancellor of the Exchequer, addressed a high-level meeting of the International Monetary Fund (IMF) and explicitly acknowledged that the 2020 Brexit deal (the UK’s departure from the European Union) has caused long-term damage to the UK economy. (AGCC)
- She said that the UK’s productivity challenge has been “compounded by the way in which the UK left the European Union.” (AGCC)
- She quoted the Office for Budget Responsibility (OBR) as estimating that the economy is around 4% smaller than it would otherwise have been if the UK had remained in the EU. (AGCC)
- She said that the government “acknowledges this” damage and that it is a driver behind its focus on trade, productivity, and budget policy. (supplychainbrain.com)
Context & implications
- This marks a notable shift in tone for the Labour government. In previous years, the party had been cautious about emphasising Brexit’s negative economic consequences, possibly to avoid alienating voters who supported leave. Reeves’ remarks show a more direct acknowledgment. (AGCC)
- The damage Reeves refers to is not a short-term shock but “long-term”: slower productivity growth, trade frictions, and heavier burdens on public finances. (leftfootforward.org)
- The acknowledgement is linked to the upcoming Budget (scheduled for 26 November 2025) in which the Chancellor will face a “black hole” in the public finances (various estimates talk of tens of billions of pounds) and will need to make decisions on tax rises, spending cuts and how to boost growth. (expressandstar.com)
Key quotes & figures
- “The UK’s productivity challenge has been compounded by the way in which the UK left the European Union.” – Reeves at the IMF meeting. (AGCC)
- She cited the OBR estimate of a 4% long-term hit to the economy from Brexit relative to remaining in the EU. (AGCC)
- She said: “There is no doubting that the impact of Brexit is severe and long-lasting.” (expressandstar.com)
What this means
- For growth/productivity: A 4% cumulative shortfall is significant in an economy of the UK’s size — slower growth means less tax revenue, weaker wages, and lower investment returns.
- For the Budget: Weak productivity and growth mean the government has fewer resources, making tax rises or spending restraint more likely — Reeves signalled she is “looking at tax and spending” to fill the gap. (The Independent)
- For trade relations: Reeves emphasised that part of the government’s response will be stronger trade agreements globally, and also “resetting” parts of the UK-EU relationship (for example goods trade, mobility) to improve performance. (The Independent)
- For politics: This shift opens the government to scrutiny: if Brexit is partly to blame for weaker growth, then voters may expect clearer plans for how to address it. The opposition has already seized on this. (expressandstar.com)
Limitations & caveats
- The 4% figure is an estimate/forecast (by the OBR) rather than a definitively measured “loss”.
- The productivity drag is the result of multiple factors (Reeves mentioned austerity, the previous mini-budget, global forces) not just Brexit. (expressandstar.com)
- While acknowledging damage is important, reversing the drag is complex and will take time; trade deals and reforms don’t deliver immediate growth leaps.
Here are case-studies and expert comments on the acknowledging by Rachel Reeves (UK Chancellor) of the economic damage caused by Brexit, as part of her remarks at the International Monetary Fund (IMF) meeting and in follow-up discussion.
Key comments by the Chancellor
- Reeves told the IMF that the UK’s productivity challenge has been “compounded by the way in which the UK left the European Union”. (MercoPress)
- She quoted the independent fiscal watchdog’s estimate that the economy may be about 4 % smaller than if the UK had remained in the EU. (MercoPress)
- She said the impact of Brexit is “severe and long-lasting”, and that the government “acknowledges this” as it sets out trade, productivity and investment plans. (The Independent)
- She linked the fiscal shortfall the UK is facing (in advance of the Budget) in part to slower growth, weak productivity and trade drag post-Brexit. (upday.com)
Case Studies / Illustrative Examples
Below are three concrete examples illustrating how Brexit-related effects are playing out in specific sectors or regions of the UK economy.
1. Trade and exporters hit
- A study cited by news outlets states that UK exporters suffered a £27 billion reduction in goods exports to the EU post-Brexit. (The Times)
- Small and medium-sized exporters were particularly vulnerable: one figure cited a 30% drop in exports for the smallest firms, and 15% for medium-sized ones. (The Times)
Why this matters – trade disruptions raise costs, reduce scale economies, and lower incentives for investment, feeding into lower productivity and output, which Reeves flagged.
2. Regional productivity weak-spots
- Reeves, in her remarks, highlighted that the UK has regional disparities in productivity, and that Brexit is one factor compounding the broader challenge. (GOV.UK)
- For instance, some regions outside the South East and London have seen slower growth and higher costs tied to new border/trade friction, supply-chain issues, and firm relocation or investment delays.
Why this matters – structural lag in some regions means national averages are dragged down; productivity weakness becomes entrenched.
3. Fiscal strain and budget gap
- Ahead of the 2025 Budget, Reeves and independent forecasters identified a potential “black hole” of roughly £50 billion (or tens of billions) tied to weak growth, inflation, and higher debt servicing. (upday.com)
- Reeves explicitly linked some of this to the slowdown in growth and productivity which she associates with Brexit. (Anadolu Ajansı)
Why this matters – slower growth means less tax revenue, higher per-unit cost of services, and less head-room for investment. Reeves uses this as a rationale for the tougher fiscal stance.
Expert / third-party commentary
- The Office for Budget Responsibility (OBR) estimate of a ~4% permanent output loss (compared to remaining in EU) has been cited by the Chancellor and others. (Reeves mentioned “people thought the UK economy would be 4 per cent smaller because of Brexit.”) (The Independent)
- The Bank of England Governor Andrew Bailey stated that Brexit will have a negative impact on the UK economy “for the foreseeable future”, in remarks made after the IMF/World Bank meetings. (Financial Times)
- The IMF’s Deputy Managing Director Gita Gopinath warned previously that Brexit is a “useful example” of the dangers of breaking trade ties — saying it is thought to have had a “sizeable negative effect” on the UK economy. (The Times)
Implications & take-aways
- Growth and Productivity: Reeves is signalling that the UK must accept a lower growth path, and that reversing it will require structural reform (investment in infrastructure, trade deals, productivity reforms).
- Budget / Fiscal Policy: Because of slower growth and the productivity drag, the government faces tougher choices (tax rises, spending restraint, investment prioritisation) than might otherwise have been needed.
- Trade & Investment Strategy: Reeves emphasised the need to strike trade deals (with the EU, US, India etc) and reduce regulatory/trade friction to compensate for the loss of frictionless access to the EU market.
- Regional and Structural Focus: The mention of regional productivity divides means the government is signalling a shift from just macro-fixes to regional/structural ones (transport infrastructure, local decision-making).
- Political Shift: The explicit acknowledgement of Brexit’s role marks a somewhat changed tone (for the Labour government) compared to earlier more cautious remarks about Brexit’s costs.
Limitations & caution
- The ~4 % figure is a modelled estimate of “what if we had stayed in the EU”, so there are uncertainties and caveats.
- Brexit is one of several headwinds (global inflation, wars, supply-chain disruptions, demographic change). The Chancellor herself mentions multiple factors. (Anadolu Ajansı)
- Reversing the damage is not immediate – structural reforms take years, investments have lags, trade deals take time to bear fruit.