Ever since the British people voted for Brexit, it has become incredibly fashionable to argue that their economy will decline while the European Union’s will power ahead. For more than five years, one economist after another lined up to predict economic doom, gloom and catastrophe.
The reality is that we were never going to know the impact of Brexit for years to come but this did not stop one professional economist after another from making increasingly speculative forecasts. The UK, we were repeatedly told, would crash and burn. It would return to be the ‘sick man of Europe’, as it was before 1973 when it joined the European Community.
The latest data on the volume of trade between the United Kingdom and European Union was seized upon by these commentators. In January, countless writers pounced on data which showed a collapse in trade with the EU.
Total UK exports to the EU fell by about 42% compared to previous years. Yet what has been much less reported on is that since then the UK’s exports to the EU have made a striking recovery, jumping by 47% in February. While they still remain slightly lower than last year’s level, they are rapidly moving in the right direction.
What these and other numbers are telling us – notes the respected analyst Wolfgang Münchau of Eurointelligence – is that even this bit of the Brexit scare stories will not come true
Several financial organizations agree, pointing to strong tailwinds behind the UK economy. The International Monetary Fund (IMF) just raised its forecast for the UK’s growth in 2021 to 5.3%, compared to 4.4%for the Eurozone and 3.6% for Germany. The UK will now almost certainly return to its pre-Covid output before the Eurozone and is tipped to go much further. In recent days, countless others have also been raising their growth forecasts for the UK – the EY Item Club, JP Morgan, UBS, the OECD, Deutsche Bank, to name only a few.
Goldman Sachs also just predicted that the UK economy will grow by 7.8% this year, faster than America. If it meets this figure, then it would be the sharpest rate of growth in peacetime since 1870. EY ITEM Club says that it will expand by close to 7%, the fastest pace since 1941. UBS, Bank of America and Barclays have also raised their forecasts, largely because of the UK’s successful vaccination rollout, which was the first serious test since Brexit – and one that it passed with flying colours.
This really does matter, not least because a sharp rebound from Covid-19 will disguise any short-term friction that followed Brexit. A year or two from now, it will be incredibly hard to make a convincing case to the British people that Brexit has been an economic disaster when they are looking at growth rates of 7%.
Some argue that Brexit could still undermine the longer-term growth of the UK. For example, some banks estimate that even with a strong 2021 the longer-term impact of Brexit could be to reduce the UK’s gross domestic product (GDP) by about 3.5% over the next few years.
Yet even if this does materialise, it will have to be considered alongside two facts. The first is that the performance of any economy is always relative. When weighing up the benefits and costs of Brexit, the British people will now routinely compare their economic performance with the Eurozone, which will continue to diverge between the more affluent north and the left behind and heavily indebted south.
The second is that even if a long-term economic squeeze from Brexit does emerge, we should remember that this is, ultimately, secondary to why people voted for Brexit in the first place.
For the 52% of voters who ticked ‘Leave’, the vote was as much about reclaiming national sovereignty, independence and control over immigration as capturing the economic advantages that will come from diverging from the EU model. Any economic gains are an additional bonus, not the underlying rationale.
As Münchau and others argue, one fundamental problem over the last five years is that many of the forecasts about Brexit were always based on shaky foundations. They were either produced by anti-Brexit economists who put politics ahead of objectivity, or relied on models that were based heavily on long-term trade flows while ignoring other areas, like data, in which the UK excels and is one of the fastest growing sectors.
In short, when future historians judge the contribution of economists to the Brexit debate, they will not be kind. And by the time they are writing I suspect that the real impact of Brexit in Europe will be visible for all to see.