How badly has Brexit screwed the UK economy?

Three months after the UK officially left the EU the effect on the economy is worse than expected. Trade problems with Europe and the prevailing coronavirus pandemic are really taking their toll. So how bad is the UK economy?

Boris Johnson has supported Brexit throughout the transition claiming it would allow Britain to regain control of its laws, borders and fisheries. However, closing off the UK economy will break down supply chains that have taken decades to form. Although the EU is only a small and ever decreasing portion of world GDP,  it made up nearly half of UK trade. Can the UK make up for this by trading further afield?

Critics say it will be difficult to make up for lost trade with other countries. Uk exports to the EU dropped by 40.7% (~£5.6 billion) in January following Brexit and another COVID lockdown, this produced the biggest monthly decline in trade in over 20 years. Markedly, French, German and Italian  data shows a 20% decline in imports from the UK in January as trade frictions were introduced.

UK exports to the EU fell by more than 40% in January
Source: Guardian

The implications of Brexit reach beyond trade, only 1 in 10 manufacturers said they were prepared for the end of the transition period. Although considering the global pandemic going on, the ‘Brexit effect’ might be more than  expected. 

Manufacturing should gradually recover throughout 2021, helped by new tax incentives which allows businesses to offset 130% of new machinery/equipment. This incentive should hopefully bring some big investment into UK manufacturing. 

So what will the economy look like?

In the short term, things will get harder as the transition period ends. Full customs processes will be phased in between April and July facing big challenges to UK imports. Politically, the UK’s decision to extend the grace period on goods from Northern Ireland has damaged UK-EU relations. This might pose a knock on effect long-term on firms that face severe bureaucratic problems. 

Overall, the Brexit transition will cause a 0.5% hit on UK GDP in the first quarter of 2021.  However, longer term, Brexit will reduce GDP by 6.4% at the annual rate of 0.5%.

If you are still unsure about the effect of Brexit on the UK economy, look at the summary below.

Despite the political and economic challenges of Brexit, the UK’s economic growth is positive. The UK is set to outpace leading EU countries such as Germany, France and Italy, accounting the effects of Brexit. The World in 2050 report forecasts that by 2050, the UK will have fallen by just one place from 9th to 10th in global economy rankings. The UK economy is set to grow at 1.9% annually.

Now you have the rundown on the future of the British economy, do you think it’s safe to invest? If you want to invest, we recommend eToro and easyMarkets for beginners. 

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