Brexit: The impact on the UK economy and British expats
- UK economy forecast to suffer a GBP 700BN output loss due to Brexit rules
- Britons lash out over border row with Brussels, arguing the EU has “closed the door” on the UK
- British expats denied COVID vaccines in Spain
- International Secretary Liz Truss believes the UK set for “roaring twenties”
According to the National Institute of Economic and Social Research (NIESR), Britain is facing the worst damage than any other leading economy due to the laggard coronavirus response from the Conservative government.
NIESR expects the UK economy to suffer a GBP 700BN output loss due to COVID-19 and Brexit, with new trading rules proving to be a challenge for small businesses and large firms across the nation.
Although Britain’s COVID vaccine rollout has helped improve the growth outlook, the leading think tank believes the scale of economic collapse last year has left Britain trailing behind other major economies such as Japan, Germany and the United States.
Last year, the UK economy contracted by 9.9% – the steepest annual collapse in three centuries and the worst of any other G7 nation – primarily due to the 19.8% decline in output suffered in Q2 2020.
NIESR said that Britain’s gross domestic product (GDP) is set to be almost 4% lower in 2025 than it would have been pre-pandemic, equivalent to a cumulative loss of GBP 727BN over five years.
While economies across the world have had their economic outlooks downgraded, nations that tackled the virus relatively early are likely to find that their long-term growth prospects fare better than Britain.
NIESR also noted that a decade of austerity-driven cuts under the Conservatives rule left Britain in a weak state when COVID-19 hit, with research showing that the UK had some of the lowest availability of hospital beds and doctors per person than other advanced nations.
That said, Brexit Britain could make a robust economic rebound this year, with economists expecting pent-up demand to unleash a consumer spending boom this summer as coronavirus restrictions are lifted, and the vaccine rollout progresses.
NIESR has upgraded its growth estimates for Britain and now expects the UK economy to grow by 5.7% in 2021 and recover to pre-crisis levels by 2022-end.
The Bank of England (BoE) is more optimistic as policymakers expect output to return to pre-pandemic levels by 2021-end, with a 7.25% expansion forecast for this year.
However, the NIESR says the impact of Britain’s departure from the EU is yet to be seen and that the lingering effects of new Brexit rules will have consequences for the economy.
Life outside the EU has already thrown up several challenges, the most prominent being the Northern Ireland border row, which the British government said it was ready to scrap.
Britain is also at risk of becoming a divided nation. The latest Scottish elections revealed Britain’s deep divisions over UK Prime Minister Boris Johnson’s competence following the Brexit result.
Brexit fury over Northern Ireland border row
Britons have lashed out at the UK government amid reports that ministers are willing to scrap the Northern Ireland protocol to protect the peace.
Although London said that it believes protocol will still work as intended, they are troubled by the EU’s hardening stance, with the bloc’s only concern appearing to be protecting its single market.
A Downing Street spokesperson accused Brussels of undermining the Good Friday agreement, and “the balance that the protocol sought to achieve is at risk of destabilising.”
Officials have also said Britain’s internal market is at risk of being undermined, with Brussels said to be treating the regulatory border in the Irish Sea like “any other external EU border”.
Trust between the two nations was fractured in January after the bloc threatened to block COVID vaccine exports to Northern Ireland due to a spat with AstraZeneca over the pharmaceutical company’s failure to honour its contractual commitments.
Although the EU reversed its position on the matter, a Whitehall source said: “The bloc’s actions have destabilised things on the ground in Northern Ireland, and no government can standby and let businesses and consumers struggle.”
However, the UK Prime Minister could further inflame the situation in Northern Ireland if he invokes Article 16 of the Withdrawal Agreement to end “ludicrous trade protocol barriers”.
Britons appear to favour the decision as many have urged Mr Johnson to scrap Northern Ireland protocol and the Brexit treaty due to the negative impact of new trade rules.
One person said: “Yes SCRAP it, and scrap the WA too and let’s trade on WTO terms and regain complete control over our waters.”
Brexit has also resulted in British expats selling their properties in Europe, with many stating that living in the EU is no longer “worth it”.
British expats say staying in the EU is “no longer worth it”
British expats in Europe are in an uproar over post-Brexit rules, which has plunged many into chaos.
Now that the UK is no longer a member of the European Union, Brits without residency status are limited to stays of 90 days within every 180 days in the EU.
In some countries, such as Spain, Britons now applying for residency status face bureaucracy and have to prove earnings of at least GBP 2K a month, with an additional GBP 500 for each dependent.
Spanish authorities are also forcing expats to acquire Spanish driving licenses if they want to obtain residency status.
Expats in Italy could also be facing the same challenges, many of which have already seen duties on property owned in Britain.
The number of expats selling properties has increased significantly following the end of the transition period, with Henny Illingworth, a real estate agent in Malaga, Spain, stating that new Brexit rules make staying in the EU “not worth it”.
According to recent reports, British expats living in Spain are also being refused COVID vaccines despite the Spanish Health Ministry claiming that the country’s vaccination campaign is inclusive to all residents.
Several expats have explained that local authorities have turned them away for not having public health cards, despite the Brexit agreement specifying that non-EU nationals must get private health insurance instead.
Brexit news has been reduced by media coverage since the transition period ended in December, with reporters turning their focus towards the challenges of COVID-19.
Yet evidently, it remains a significant problem for people and businesses, with the macro impact of the UK’s departure from the EU still to be seen.
With approximately 40% of the UK financial services sector relying on trade with the EU, the implications of the new Brexit rules are expected to trigger significant consequences for one of Britain’s largest export earners.
The impact of Brexit on the UK financial services sector
Britain’s financial services sector contributes around GBP 32BN to the economy every year; however, most of this comes from trade with the EU. Given that the bloc is reluctant to grant the UK equivalence status, uncertainty may encourage another migration of financial firms from the City of London and towards the European Union.
According to the latest research from Aviva, twice as many CEOs believe the impact of Brexit on their business has been more negative than positive this year, with regulatory and legislative changes perceived to be the most severe risks to business after COVID-19.
Although the UK has granted the EU access to its internal market, Brussels refuses to reciprocate, fearing that Britain will diverge from the bloc’s rules and gain a competitive edge.
It comes amid reports that the EU has “closed the door” on any future post-Brexit negotiations with Britain, following talks to reduce checks on animal health, plant, environment and food safety.
However, International Trade Secretary Liz Truss believes that British businesses possess an incredible ability to adapt, and praised their resilience in the face of the coronavirus and Brexit.
Ms Truss went on to say that the UK economic forecasts had been significantly upgraded and we are no longer held back by being part of a bloc.
Although businesses have had to undertake new processes, she said “those tales of Armageddon haven’t happened” and that there’s plenty of resources and funding available for British firms to help them stay afloat.
Small businesses and medium firms can take advantage of the SME Brexit Support Fund, which provides GBP 2K in grants for practical support and professional advice.
For further information on what help is available for your business, visit gov.UK/transition and use the Brexit Checker tool to create personalised actions for your company.