A recent report from the Greater London Authority (GLA) reveals that Brexit has significantly impacted the UK’s economy, making it nearly £140 billion smaller than it would have been had the country remained in the European Union. This analysis highlights the profound economic consequences of the UK’s departure from the EU.
Economic Impact Overview
- Overall Economic Size: The UK economy is approximately £140 billion smaller due to Brexit.
- Job Losses: Nearly 2 million jobs have been lost across the UK, with almost 300,000 fewer jobs in London alone.
- Household Income: The average Briton was nearly £2,000 worse off in 2023, while the average Londoner experienced a loss of nearly £3,400.
Impact on London
- Gross Value Added (GVA): In 2019, London’s GVA was 6.2% (£32 billion) lower than it would have been had the UK voted to remain in the EU.
- Household Income Loss: This equates to approximately £9,500 of foregone income for every household in London.
- Projected Future Losses: If no action is taken, over £60 billion could be wiped off the value of London’s economy by 2035.
Sectoral and Structural Impacts
- Trade and Investment: Brexit has stalled trade and investment activity, leading to a 5% reduction in the UK economy, according to Goldman Sachs economists. (Fortune)
- Labor Market: The UK has experienced a decline in labor force growth, partly due to reduced migration and changes in labor market dynamics.
- Productivity and Growth: Brexit has been associated with lower productivity growth and slower economic recovery compared to other advanced economies.
Long-Term Projections
- National Economy: Without corrective measures, the UK’s economy could be over £300 billion smaller by 2035.
- London’s Economy: London could face a loss exceeding £60 billion by 2035, impacting public services and overall economic vitality.
Policy Recommendations
The Mayor of London has emphasized the urgent need to rebuild a closer relationship with the EU to mitigate these economic challenges. Strengthening trade ties, enhancing labor mobility, and fostering investment are crucial steps toward economic recovery and growth.
A report by Cambridge Econometrics, commissioned by the Mayor of London’s office, suggests the economic impact of Brexit on the UK is significantly worse than previously expected, with substantial long-term costs.1
The key findings and commentary include:
Economic Impact and Forecasts
- Cost to Date and Future Loss: The analysis estimates that Brexit has already cost the UK economy £140 billion and projects that the nation could be £311 billion worse off by 2035 than if it had remained in the EU.2
- GDP/GVA Impact: The UK’s real Gross Value Added (GVA), a measure of economic output, was approximately 6% lower in 2023 than it would have been without Brexit, and is projected to be 10.1% lower by 2035 under the current relationship.3
- Jobs and Investment: The report projects that by 2035, the UK could have three million fewer jobs and 32% lower investment than a scenario without Brexit.4
- Trade: It forecasts 5% lower exports and 16% lower imports by 2035 compared to the counterfactual scenario.5
Business Challenges and Case Studies (Thematic)
The post-Brexit trading relationship (the Trade and Cooperation Agreement or TCA) has introduced significant non-tariff barriers which create administrative and financial hurdles for businesses.6 While specific company names are not always detailed in the public summaries, sector-specific challenges illustrate the impact:
- Supply Chain Disruptions: Many businesses, particularly those operating on a Just-in-Time (JIT) strategy, have faced increased costs, red tape, bureaucracy, and delays due to new customs checks and border controls.7 Research indicates that supply chain disruption is considered the most significant challenge for many UK businesses, surpassing even the impacts of COVID-19 and the war in Ukraine for some.
- Labour Shortages: The end of the free movement of people has disproportionately affected sectors reliant on lower-skilled EU workers, such as hospitality, construction, and transportation.8 The hospitality sector, for example, has seen a significant rise in vacancies and a fall in EU workers, forcing businesses to raise salaries or invest in new technology to cope.9
- SME Disadvantage: Small and Medium-sized Enterprises (SMEs) generally face greater challenges than multinational companies, as they have fewer resources to manage the rising costs and complicated administrative procedures associated with exporting to the EU.
Comments and Political Reaction
- Economists’ Consensus: The Governor of the Bank of England, Andrew Bailey, has stated that Brexit would have a “negative” impact on the UK economy for the “foreseeable future,” noting the reduction in long-term productivity caused by trade barriers.10
- Political Framing: The Mayor of London, Sadiq Khan, who commissioned the Cambridge Econometrics report, used the findings to argue that the “hard-line version of Brexit we’ve ended up with is dragging our economy down” and advocated for a closer relationship with the EU to arrest the decline.11
- Official Forecasts: The independent Office for Budget Responsibility (OBR) has long forecast that the TCA would reduce the UK’s long-run productivity by around 4% relative to remaining in the EU, largely due to non-tariff barriers on UK-EU trade.12 Recent government comments, like those from Chancellor Rachel Reeves, have explicitly blamed a heavier than anticipated blow from Brexit for forcing difficult decisions in the budget.13