February 2, 2023

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Brexit broke the economic foundations of Britain


London
CNN

It has been two years since former Prime Minister Boris Johnson signed his contract Brexit trade deal He declared triumphantly that Britain would be “prosperous, dynamic and content” after completing its exit from the European Union.

Brexit deal will enable UK companies “Doing more business” with the EU, according to Johnson, would leave Britain free to strike business deals around the world While continuing to export smoothly to the EU market of 450 million consumers.

In fact, Brexit has happened I limp The UK economy, which remains the only member of the Group of Seven – the group of advanced economies that also includes Canada, France, Germany, Italy, Japan and the US – with an economy smaller than it was before the pandemic.

Years of uncertainty over the future trading relationship with the European Union, Britain’s largest trading partner, has hurt business investment, which in the third quarter was 8% below pre-pandemic levels despite a UK-EU trade deal in place for nearly two years. .

The pound took a hit, making imports more expensive and stoking inflation while failing to boost exports, even as other parts of the world enjoyed a post-pandemic trade boom.

Brexit created trade barriers for British and foreign companies that used Britain as a European base. It burdens imports and exports, undermines investment, and contributes to labor shortages. All of this exacerbated Britain’s problem of inflation, hurting workers and the business community.

Alan Winters, Co-Director of the Center for Inclusive Trade Policy at the University of Sussex: “The most plausible reason why Britain is doing relatively worse than similar countries is Brexit.”

The gloom hanging over the UK economy has been captured before striking workers, who are out in greater numbers than ever before because of wages and conditions as the worst inflation in decades eats away at their wages. At the same time, the government Cut spending and raise taxes to fill the void in its budget.

While Brexit is not the cause of Britain The cost of living crisisIt made solving the problem more difficult.

“The UK chose Brexit in a referendum, but then the government chose a very hard form of Brexit, which added to the economic cost,” said Michael Saunders, senior adviser at Oxford Economics and a former Bank of England official. Any hope of an economic lift from Brexit is pretty much gone.

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Although Britain voted to leave the European Union in June 2016, its exit from the single market and customs union was not finalized until December 24, 2020, when the two sides finally agreed on a free trade agreement.

The Brexit agreement, known as the Trade and Cooperation Agreement, will enter into force on January 1, 2021.

It abolished customs duties on most goods but introduced a range of non-tariff barriers, such as border controls, customs checks, import duties, and health inspections on plant and animal products.

Before Brexit, a farmer in Kent could ship a truckload of potatoes to Paris as easily as he could send them to London. Those days no longer exist.

Michelle Ovens, founder of Small Business Britain, said: “We hear stories every day from small businesses about nightmares of forms, relocation, couriers, things that get stuck for weeks at a time…, group campaigns.

“The way things have gone the last couple of years has been really bad for small businesses,” Ovens told CNN.

researchers in London School of Economics It is estimated that the variety of UK products exported to the EU decreased by 30% during the first year of Brexit. They said this was most likely because small exporters were pushed out of the small EU markets.

Take, for example, Little Star, a British company that makes jewelry for children. Its business took off in the Netherlands and had plans to expand into France and Germany after that. But since Brexit, only two of its more than 30 Dutch clients are willing to deal with the costs and paperwork to acquire stock from the company.

Products that took two days to ship now take three weeks, while import duties and sales taxes have made it more difficult to compete with European jewelers, according to Rob Walker, who co-founded the company with his wife, Vicki, in 2017. The company is now looking for growth opportunities in United State.

“Isn’t it crazy that we have to look to the other side of the Atlantic to do business, because it’s so hard to do business with people 30 miles away?” Walker said.

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A Union Jack truck drives past the port of Dover on April 1, 2021. The UK government has postponed post-Brexit EU food import checks until the end of 2023.

A British Chamber of Commerce survey of more than 1,168 businesses published this month reported that 77% said Brexit had not helped them increase sales or grow their business. More than half of them said they find it difficult to adjust to the new rules for commodity trading.

Dorset manufacturer Siteright Construction Supplies told the Chamber that importing parts from the EU to fix broken machines had become an expensive and time-consuming nightmare.

According to Siteright, “Brexit was the biggest bureaucratic imposition ever made on business.”

Nova Dog Chews, a producer of dog snacks, said it would have lost all trade with the EU had it not set up a base in the bloc. She added: “This has cost our business a huge amount of money, which could have been invested in the UK had it not been for Brexit.”

A British government spokesperson told CNN that the government’s export support service provided exporters with “practical support” on implementing the Brexit deal. The spokesperson added that the deal is “the world’s largest tariff-free, zero-quota free trade deal”. “It secures access to the UK market across key service sectors and opens up new opportunities for British businesses around the world.”

Britain will not easily replace what it has lost by confiscating unfettered access to the world’s largest trading bloc.

The only substantial trade deals it has had since leaving the European Union, which it has not simply renewed as an EU member, have been with Australia and New Zealand. According to the government’s own estimates, it will have a minimal impact on the UK economy, resulting in a long-term GDP increase of only 0.1% and 0.03% respectively.

By contrast, the UK’s Office for Budget Responsibility, which produces economic forecasts for the government, expects Brexit to reduce Britain’s output by 4% over 15 years compared to staying in the bloc. Exports and imports are expected to decline by about 15% in the long run.

Preliminary data proves this. According to the OBRIn the last quarter of 2021, the volume of UK merchandise exports to the EU was 9% lower than 2019 levels, with imports from the EU down 18%. Goods exports to non-EU countries were 18% weaker than in 2019.

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The UK “appears to be becoming a less trade-intensive economy, with trade as a share of GDP down 12% since 2019, two-and-a-half times more than any other G7 country,” the Office of the Budget said in the March report.

The drop in exports to non-EU countries could be a sign that British companies are becoming less competitive as they grapple with rising post-Brexit supply chain costs, according to John Doe, professor of economics at Aston University in Birmingham.

The UK’s trading capacity has been permanently damaged [by Brexit]Du told CNN. “It doesn’t mean he can’t recover, but he has been regressing for several years.”

search by Center for European Reforma think-tank, estimates that over the 18 months to June 2022, UK trade in goods was 7% lower than it would have been if Britain had remained in the EU.

Investment is 11% weaker and GDP 5.5% lower than it would have been, which costs the economy £40 billion ($48.4 billion) in tax revenue a year. That’s enough to cover three-quarters of the spending cuts and tax increases made by British Chancellor of the Exchequer Jeremy Hunt Announced in November.

The United Kingdom is expected to have one of the worst performing economies next year among developed countries.

The Organization for Economic Co-operation and Development expects the UK economy to contract by 0.4%, ahead of only sanctions imposed on Russia. Germany’s GDP is expected to be 0.3% lower.

The International Monetary Fund expects only 0.3% growth for UK GDP next year, ahead of only Germany, Italy and Russia, which are expected to contract.

Both institutions say that high inflation and higher interest rates will affect consumer and business spending in Britain.

According to the Confederation of British Industry, the leading business group, the decline in private sector activity accelerated in December and has now fallen for five consecutive quarters.

Martin Sartorius, chief economist at CBI, said in a statement that the downward trend “appears to be deepening” in 2023.

Businesses continue to face a number of headwinds, with rising costs, labor shortages and weak demand contributing to a bleak outlook for the year ahead. ”

— Julia Horowitz contributed to this report.