Five years since the Brexit vote… How Britain defied the naysayers


When Britain voted decisively to the leave the European Union five years ago today the predictions from economic commentators on both sides of the Atlantic was that not just Britain but the whole world could be heading for catastrophe.

The dire forecasts of former International Monetary Fund (IMF) chief Christine Lagarde – now at the European Central Bank – are still as fresh in the mind because she pronounced them with such aplomb.

Such an event would have ‘pretty bad, to very, very bad consequences.’ An analysis by HM Treasury on the eve of the vote in May 2016 forecast a decision to leave would present a ‘profound shock to our economy, push our economy into recession, lead to an increase in unemployment of 500,000 and GDP (total output) would be 3.6 per cent smaller.’

Doom and gloom: The dire forecasts of former IMF managing director Christine Lagarde (pictured) after the Brexit vote five years ago are still fresh in mind

The consensus was that not just the UK would suffer, with long-term damage to trade, but the world economy.

The truth is that even if the worst-case scenario, as projected by the IMF, had emerged and some 5 per cent was wiped off output over five years it would have been small change when contrasted with the impact of the pandemic. 

Amid the economic disaster caused by closing great swathes of the world economy down, the Brexit referendum outcome proved minor league.

The UK economy suffered a calamitous loss of 9.9 per cent of output in 2020 – on some measures the worst in the Western world. 

But there has been no double-dip recession, the UK economy is expected to be the fastest-growing among the G7 richest countries this year and the most rapidly expanding in 2021.

Far from an unemployment tragedy there is a jobs miracle. Admittedly, this has been helped by Chancellor Rishi Sunak’s furlough programme. 

The numbers from May 2021 speak for themselves. The jobless rate in the three months to April stood at 4.7 per cent of the workforce compared with 7.3 per cent across the EU.

People on payrolls in Britain soared by 197,000 in May, the biggest increase since 2014. Britain is working (if from home!) and the direst Brexit and Covid projections are as of dust.

Trade

Britain is one of the world’s most open economies and trade is front and centre of all that the economy does.

The closure of large parts of air transport, the raw dispute over the Northern Ireland protocol and the erection of non-tariff barriers by the EU has made life difficult for many businesses.

Requirements, for instance, that customs declarations be made for every item shipped has led firms with the resources to set up Continental distribution.

Brexit and the pandemic mean that trade numbers are hugely volatile but some trends can be discerned from the latest data released by the Office for National Statistics. 

Britain’s imports and exports to non-EU countries exceeded those to the EU in the first quarter of this year for the first time since records began in 1997. 

In the first quarter, trade with the EU fell 18.4 per cent but, by March, trade had all but normalised with a small increase of £1billion. 

Overall, the UK’s trade deficit with the whole world has been shrinking. Impressive progress has been chalked up by International Trade Secretary Liz Truss. 

Some 66 trade accords, previously negotiated by the EU, have been rolled over or replicated.

Britain's creative sector continues to flourish as rock stars such as Adele (pictured) shine as earners of overseas income

Britain’s creative sector continues to flourish as rock stars such as Adele (pictured) shine as earners of overseas income

More exciting are deals with Japan and Australia, with New Zealand on the cards. The Aussie deal has been controversial because of the campaign against it by UK farmers. 

It is critically important: less for the amount of trade it unlocks and more because it includes services, where the UK has a large competitive advantage.

It also opens the door to the Comprehensive and Progressive Agreement, for Trans-Pacific Partnership, which accounts for 13.5 per cent of global GDP and is in the world’s fastest-growing region.

City

There were dire predictions that Brexit would be the end of the City as a great financial centre. The Bank of England forecast 10,000 jobs would flee.

Only 7,400 posts have moved to mainland Europe in five years. The losses are far outweighed by gains. 

Investment banks JP Morgan, Goldman Sachs, BNP Paribas, Japan’s MUFG and UBS expanded London staff in the thousands. Some £1trillion of assets shifted abroad but almost all the asset managers remain in Britain.

Similarly, even though trading in euro-denominated stocks moved to Amsterdam many are traded on the London Stock Exchange ‘Turquoise’ system, transferred to the Netherlands.

The exchange itself has gone global with the purchase of Refinitiv, which gives it access to trading desks around the world, a treasure trove of data, forex capacity and a stake in one of the world’s largest debt trading platforms. 

The number of IPOs coming to London is surging, with Dr Martens and The Hut Group among the successes.

Fintech

The Bank of England predicted that if the UK lost some trades to the EU, its knowledge and expertise in IT, artificial intelligence and money would place it at the cutting edge of financial technology. So it is proving.

In the last week payments transfer pioneer Wise has said it will float in London. JP Morgan has snapped up digital asset manager Nutmeg and will launch its first fully digital bank in London. 

Shoreditch and South of the Thames are blossoming with hundreds of digital start-ups and expanding UK online banks Monzo, Revolut, Atom et al are creating a new digital frontier.

Life Sciences

Britain’s world-class research universities Oxford, Cambridge, Imperial and UCL remain a magnet for innovation, their reputations burnished by their key role in the pandemic. 

Big pharma – Astrazeneca and Glaxosmith-kline – has risen to the challenge of Covid with vaccines and palliative treatments.

Creative

This sector continues to flourish. Comcast-owned Sky is investing £2billion in a 32-acre site in Elstree. 

JK Rowling continues to be a global phenomenon and rock stars such as Adele shine as earners of overseas income. 

Music rights fund Hipgnosis is snapping up songbooks. The Premier League and F1, both British creations, are sports money-spinners.

There are problems for European music tours. But, overall, the shadow of Brexit does not hang darkly.

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