There is a lot wrong with this article, as well as the use of some emotive language; for example a range of UK GDP estimates are described as GDP ‘damage’. The article also uses unsubstantiated platitudes such as: ‘most economists accept that the economy will suffer in the long term.’ They throw this line in after admitting that: ‘since Brexit, the UK [National Income] has effectively held its own.’ It is inconceivable to the authors that Brexit may not have made the UK economy ‘suffer’.
There are also several non-sequiturs. For example, under the subtitle Household Income, they complain that UK real disposable income has trailed that of Germany, France and Italy, but then in the next section they complain that an acute labour shortage in the UK is forcing wages to rise. Surely if they are worried about low disposable incomes, they should be happy about higher wages? But while they are honest enough to state that the loss of workers is due to the pandemic, retirement and long-term illness, and not Brexit, they don’t mention that the UK’s low real disposable income is due to high inflation caused by a massive covid-related increase in the money supply, coupled with 18 years of ridiculous energy policies that undermined both domestic supplies and ignored the possibility of the present energy security problems. Both issues have nothing to do with Brexit.
Similarly, they complain about the UK’s low productivity, but admit this has been a problem since the financial crisis fourteen years ago. Again – nothing to do with Brexit per se, although both the UK’s energy policies and the UK’s low productivity growth do make clear that once a country has taken back control of its law it is vital to have a competent government making the country’s regulations. Unfortunately, that has not been the case in the UK.
But the most obvious piece of propaganda in this article is the conflation of trade with trade intensity. The authors define trade intensity as a country’s total trade, imports plus exports, as a proportion of its GDP, then use a graph comparing trade intensity for the UK with the G7 average excluding the UK, under the misleading title Leaving the European Union has had an adverse impact on British trade. This is not a graph title but a biased statement, which is not even illustrated by their graph of trade intensity.
Trade intensity merely measures how important trade is to a country’s economy. Low trade intensity is not necessarily a bad thing, and it is as heavily influenced by the size of a country’s GDP as it is by their total trade. If you look at the trade intensity for all G7 countries individually, the G7 country with the lowest trade intensity is the US, at only 23% in 2020. This doesn’t mean that the US economy is failing. US GDP is an order of magnitude larger than any other G7 economy, and 4.5 times larger than the GDP of the next largest G7 economy, Japan. US GDP is about 4 times larger than US total trade.
Some economists believe that high trade intensity is a bad thing as it makes countries more vulnerable to external shocks. In which case, this may not be an economic attribute the UK should be targeting as we move into a global recession.
Looking at the chart of G7 trade intensity above, the UK is firmly in the middle, with a trade intensity similar to those of France, Canada and Italy. And although UK trade intensity is lower than its 2019 level, it is back near its pre-Referendum 2015 level. So how could this be blamed on Brexit?
And while Germany may be looking robust in the chart above, if you take out the non-EU G7 countries and add in those well-known world leading EU trading nations – Cyprus, Malta, and Ireland, or even some smaller EU nations such as the Netherlands and Belgium, you can see in the graph below the absurdity of using trade intensity as a metric to prove anything about a country’s economy or even its trade. Malta is certainly not a more important trading nation than the US, although its trade intensity is ten times larger. Yet the authors of the Bloomberg article would like us to think that the UK’s trade intensity is a sign of its relative economic weakness.
A more interesting metric that the authors could have used is export volume, indexed from 2000 – the birth year of the Euro (chart below). While German, US and Japanese export volumes are below their 2018 highs, and UK and Canadian export volumes are below their 2019 highs, Italy’s export volume is virtually unchanged since it joined the Euro in 2000 and France is well below not only its 2000 level but also below the very low export volume hit during the 2009 financial crisis. Will the good people at Bloomberg be blaming this on Italeave or Frexit? Or is this a reflection of the relative currency rates when Germany, Italy and France joined the Euro?
It is often claimed that the Euro conversion rate was too low for Germany and too high for Italy, thus enabling German exports to grow while Italian exports shrank. However, there are many other influences on any country’s export competitiveness beside relative currency values – although it is an important factor. Yet the article’s authors complain about the fall in the pound relative to the US dollar a few paragraphs before they decry the UK’s ‘slowdown’ in trade. If anything, the pound’s recent fall against the dollar should help UK trade, as the US is the UK’s largest export market.
The article also quotes Swati Dhingra: ‘we are seeing a much bigger slowdown in trade in the UK compared to the rest of the world’. This is strange, as the ONS isn’t recording a fall in trade in the UK, both imports and exports were up in Q3 2022, does she mean that UK trade isn’t increasing as much as the rest of the world? If this is so, as the UK only left the EU on 1 Jan 2021, giving us less than two years of trade data which also includes Covid lockdowns, I believe that it is far too early to correctly attribute a structural change in trade to Brexit rather than to lockdown induced trade bottlenecks, staff shortages, limited marketing opportunities during Covid or high energy costs which both distort trade values and disrupt local manufacturing.
However, there is one topic where I would completely agree with the authors of the Bloomberg article: investment in the UK has suffered due to uncertainty and instability. I would add that the many policy U-turns of UK governments since the Brexit referendum have had a large part to play here: from Theresa May threatening to trade with the EU on WTO terms then chickening out and extending the negotiating deadline countless times, while simultaneously working to tie the UK to EU regulations indefinitely; to Boris Johnson claiming to Get Brexit Done then leaving Northern Ireland under EU control, while changing few EU regulations but making the UK’s environmental regulations even less competitive than those of the EU.
But worse have been the actions of the UK’s Chancellors: first, Philip Hammond promised to lower UK corporate taxes to 17%; then Rishi Sunak decided to increase them to 25%; then Kwarteng promised to leave them at 19%; and finally, Hunt increased them to 25% again and slapped a 75% windfall tax on the oil and gas sector until 2028, with no explanation as to how a ‘windfall’ can last for 5 years. This incoherent and damaging corporate taxation policy should deter most international investors, with or without Brexit. And the Opposition, which will form the next government according to opinion polls, could be worse, since they are proposing to apply similar windfall taxes retrospectively. This is even less likely to attract new investment funding to the UK.
By any measure, poor UK economic performance in future years will not be the fault of Brexit, but entirely due to the ineptitude of our politicians. Our governing classes must realise that they are in control now. If the economy stagnates, they will be held responsible.
The United Kingdom – all of it – needs a government that will create a regulatory environment which encourages new economic activity, innovation, research and development, SME’s, self-employment, business investment, energy development and trade. Any deviation from this can no longer be blamed on Brussels – our politicians are the architects of our destiny now. So far, there are very few who appear either willing or able to launch a bold independent economic strategy. Perhaps because those who try are undermined by the Establishment, and even hounded out of office, by the devotees of Project Fear.