By Emil Sokolov
Office for Budget Responsibility (OBR) is more optimistic than most economists. The chart shows UK GDP growth on an annual basis.
The referendum on the UK's exit from the European Union was paraded as an opportunity for a brighter future for the British economy. Supporters argued that leaving the EU would allow Britain to strike its own trade deals, cut red tape and strengthen its economy. Britain officially left the European Union on 31 January 2020. Now, five years later, the reality looks very different.
In early January 2025, the Mayor of London, Sadiq Khan, referred to a new independent analysis that claims the cost of Brexit to the UK economy is estimated at £140 billion. The report, produced by Cambridge Econometrics, shows that the average Briton is nearly £2,000 poorer in 2023, while for Londoners that amount is close to £3,400 in 2024 as a result of Brexit. How has it come to this?
The era of Boris Johnson (2019-2022) - First steps into the new reality
Before the referendum in 2016, the British economy was growing steadily. Real GDP grew by 2.9% in 2014 and 2.3% in 2015. After the referendum, however, the trend quickly changed. Growth fell to 1.7% in 2017 and to 1.3% in 2018 and 2019.
Against this backdrop of unfavourable statistics, Boris Johnson began his reign with a promise to deliver Brexit and a favourable trade deal with the EU. His plans quickly clashed with the growing problems of the British economy. According to the UK Office for National Statistics, in 2020 the British economy will see a 9.9% drop in GDP - the biggest fall in 300 years.
While the COVID-19 pandemic has played a significant role, analysts point out that Brexit has contributed to deepening economic problems. According to research by Aston Business School, between 2021 and 2023 UK exports to the EU fell by 27% and imports by 32%. In 2020, debt surpasses a record 90% of the country's GDP.
Liz Truss' term as Prime Minister (2022) - Political chaos and economic collapse
Liz Truss succeeded Johnson in 2022, but her reign lasted only 49 days. Her economic policies, including the proposal of significant tax cuts, were met with criticism and led to instability in the financial markets. The pound has fallen below $1.11 for the first time since 1985, with the currency dropping as much as 19% since early 2022 and government bond yields rising sharply, forcing the Bank of England to intervene. Inflation reached 11.1% in October 2022 - the highest level in 40 years.
Rishi Sunak's reign (2022 - 2024) - Stabilisation attempts
Once Rishi Sunak took power in October 2022, he immediately set about stabilising the economy. His policies focused on reducing inflation and restoring market confidence. However, economic growth remained weak. According to the Office for National Statistics, UK GDP grew by just 1.8% over the 2019-2024 period, well below the G7 average.
Sunak sought to improve relations with the EU by concluding an agreement on Northern Ireland in 2023. Trade restrictions continued to have a negative impact. According to research by the Centre for European Reform (CER), the UK economy is 5.5% smaller than in a hypothetical scenario in which Brexit did not happen. Inflation also continues to exert pressure, reaching double digits in 2023, mainly due to increased electricity and food costs.
All this has led to a dramatic reduction in consumer spending power and a fall in consumer spending. Despite Sunak's efforts, the UK was left facing inflationary pressures, falling investment and declining confidence in its economic stability.
The Labour Government of Keir Starmer (2024-2025) - Slowing Economic Growth and Economic Hardship
Following the Labour Party's victory in the 2024 election, Keir Starmer took power on promises of social justice and economic recovery. The policies of Starmer's cabinet, including tax increases for corporations and investment in the green economy, were met with mixed reactions. The budget, that Chancellor of the Exchequer Rachel Reeves presented, included a tax increase of more than £40 billion, which put yet more burden on businesses and households.
According to The Financial Times, these measures led to a sharp drop in business confidence and investment. Statistics from the Johannesburg-based New World Wealth show that around 10 800 millionaires left the UK last year. The exodus, which includes 78 millionaires with hundreds of millions in their accounts as well as 12 billionaires, is just the beginning. The UK is forecast to lose 17% of its millionaires in the five years to 2028, the biggest drop among the 36 countries predicted in the UBS Global Wealth in 2024 report.
The labour market situation is not rosy either. Almost one in four British businesses have cut jobs in December 2024 amid widespread pessimism about the squeeze on finances caused by Labour's budget to raise taxes. Some 23% of employers have cut their workforce - the fastest rate for more than 15 years if you exclude the pandemic.
What are the future economic scenarios for the UK?
According to Moody's analysis, the UK will face continued stagnation and slower growth in the coming years. One possible scenario is closer cooperation with the EU, which could lead to a partial recovery in trade flows. However, this would require compromises that may be politically difficult.
Another scenario is for the UK to focus on new trade partnerships outside the EU with the US and countries in Asia. These efforts are unlikely to fully offset the losses from Brexit. Recent analysis suggests that the UK's trend growth rate - the rate at which the economy can grow sustainably without increasing inflation - has halved from an average of 2.5% a year between 1955 and 2009 to 1.2% in subsequent years.
Despite the best efforts of successive governments, Brexit turned out to be a promise that did not come true. According to a recent poll published by Euronews, only 30% of Britons believe the decision to leave the EU was the right one. Instead of bringing economic growth and independence, Brexit has led to stagnation, reduced trade and political instability. The question now is whether the country will find a way to cope with the new realities or remain in a state of stagnation.
