Concordia

Concordia Winter 2021

Brexit

Brexit a year on Raoul Ruparel OBE (2000-2005) was the Prime Minister’s Special Advisor on Europe under Theresa May, leading on all aspects of Brexit, including negotiations with the EU, preparations for No Deal and negotiations with various groups in Parliament including the DUP and Labour. He was previously Special Advisor to the Secretary of State for Exiting the EU under David Davis. Prior to joining Government he was Co-Director of think tank Open Europe, a contributing author for Forbes and a member of the British Chambers of Commerce Economic Advisory Council. He is now Director of Trade and Investment at Deloitte UK.

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O ne year on from the beginning of the UK’s new relationship with the EU and five and a half years after the referendum, the truth is we still haven’t seen the full effect of Brexit. It is particularly challenging in the context of the Covid-19 pandemic to determine what impact Brexit alone has had on trade, given we also saw the largest fall in economic activity for over three hundred years. However, as with many debates these days, people seem to assume it has either been a complete disaster or a massive success depending on their own preconceptions. Looking at data from the Office for National Statistics we can see a clear impact when it comes to trade in goods. There was a sharp fall in both imports from, and exports to, the EU at the start of this year when the transition period ended and the new relationship came into force. However, since then UK goods exports to the EU have largely recovered to their pre-pandemic level and in September 2021 were just 3.6% below the levels seen in September 2019. On the other hand, UK imports from the EU have remained subdued and are still 14.5% below their September 2019 levels. This is somewhat counterintuitive since the UK hasn’t even instituted full border checks for imports from the EU. It does suggest that UK businesses may be better prepared to deal with the new administrative requirements and barriers to trade,

but also that even at the sign of some minimal barriers some EU businesses have decided that it is not worth selling into the UK. This data then presents a somewhat mixed picture exports have recovered a bit better than expected, but imports continue to be puzzlingly low. But this alone is not the whole story. The decision to leave the EU has been impacting the UK economy since the vote took place. Foreign Direct Investment (FDI) has been subdued, partly due to uncertainty around the outcome of Brexit. According to the Department for International Trade, the number of FDI projects in the UK has fallen from over 2,200 in 2016/17 to just over 1,500 now, with much of this drop taking place pre-pandemic. Furthermore, wider data suggests that other similar economies have seen a significant bounce in trade as part of the economic recovery this year following the pandemic-led contraction last year. This is something which the UK has largely missed out on, at least partly due to the new trade barriers between the UK and the EU. On services, the picture is even less clear cut, not least because the data is less detailed. There has clearly been a hit to services trade from the pandemic. This has not yet been reversed in any meaningful way. However, there is also no clear impact from Brexit showing up in the data. In the end, the real impact is only likely to show up once people truly begin to move across borders