Brexit is sh1t
It finds that Britain has experienced a sharp decline in trade openness (total trade as a share of GDP) since 2019 – a fall of 8 percentage points. France, which has a similar trade profile to the UK, has experienced a far smaller 2 percentage-point fall over the same period.
This decline is not explained by changes in the pattern of global trade during the pandemic. The report notes that the UK also lost market share across three of its largest non-EU goods import markets in 2021: the US, Canada and Japan.
The full effect of the TCA will take years to be felt but this move towards a more closed economy, say the authors, will make the UK less competitive, which in turn will reduce productivity and real wages. The research estimates that labour productivity will be reduced by 1.3 per cent by the end of the decade by the changes in trading rules alone. This will contribute to weaker wage growth, with real pay set to be £470 per worker lower each year, on average, than it would otherwise have been.
This shift towards a more closed economy will have large effects on some sectors, with the output of our fishing industry expected to decline by 30 per cent, and some workers will face painful adjustments. But it will not fundamentally transform the structure of the economy overall – tradable professional services are expected to shrink as a share of the economy by just 0.3 percentage points, and manufacturing by just 0.1 percentage points.
Detailed modelling finds that one of the worst hit sectors of the UK economy will be the manufacture of electrical equipment, which is particularly reliant on cross-border supply chains. In contrast, the manufacture of food products is set to grow post-Brexit as it supplies the UK market.
These shifts will add to Britain’s productivity challenges, as the manufacturing sectors of the economy that are expected to shrink tend to be more productive than ones that are expected to grow – average productivity among shrinking manufacturing sectors is £47 per hour, compared to £37 per hour among growing sectors.
These contrasting fortunes of different sectors of the economy also mean that the impact of Brexit will be felt differently across the UK.
The report finds that the North East is expected to be hit hardest by Brexit – as its firms are particularly reliant on exports to the EU – while the East of England (which has a high share of food manufacturing) and Scotland are expected to outperform the rest of the country.
The report concludes that while the debate on the impact on Brexit has implied a one-off shock, adjustment will be gradual and create a lasting impact on Britain’s competitiveness and productivity over the coming decade
www.resolutionfoundation.org
