Brexit’s damage to UK economy in no doubt
The Herald’s Business Editor presents his analysis on the week that was
THERE has been much to grab the attention on the economic front in recent days. The UK tumbled into recession in the fourth quarter of last year, it emerged on Thursday. Gross domestic product dropped by 0.3% quarter on quarter in the final three months of last year, data from the Office for National Statistics showed. This followed a 0.1% quarter-on-quarter decline in GDP in the three months to September 2023.
This means the UK has now met the definition of technical recession, with two consecutive quarters of contraction.
In terms of the way things feel in postBrexit Britain, recession might not be that much different from the protracted stagnation we have endured.
However, the country’s fall into recession should surely be an embarrassment to the ruling Conservatives, who have made such a mess of overseeing the economy, as should the fact the UK grew by just 0.1% last year.
Talking of the Tory mess, a report from Goldman Sachs economists James Moberly and Sven Jari Stehn on the cost of Brexit is eye-catching indeed.
Goldman Sachs is a big name when it comes to economics so anyone who has not yet tumbled to the full destructive force of Brexit would do well to reflect on its research.
The UK’s economic output has fallen short of that of similar countries by about 5% since the 2016 Brexit referendum, the Goldman economists conclude. This is a lot.
In the research published on February 9, the Goldman economists observe: “The UK has significantly underperformed other advanced economies since the 2016 EU referendum, with lower growth and higher inflation.”
Surely that is simple enough to understand, even for those wearing Brexiter goggles.
‘Colossal damage’
THE UK economy, clearly, does not have its troubles to seek. The last thing it needs is damage inflicted wilfully by the country’s leaders. Yet this is what we have.
And the silence from Labour about the colossal damage from Brexit, as laid out in the Goldman research and previously by the Office for Budget Responsibility and John Springford at the Centre for European Reform as well as others, is quite remarkable.
OBR chairman Richard Hughes said last spring of Brexit’s effect: “We think that in the long run it reduces our overall output by around 4% compared with had we remained in the EU.” Centre for European Reform associate fellow Springford estimates Brexit had, by the second quarter of 2022, reduced the country’s GDP by 5.5%.
The International Monetary Fund forecasts the UK economy will this year record the second-weakest growth among the Group of Seven leading industrialised nations.
The UK is expected by the IMF to expand by just 0.6% in 2024, marginally ahead of the 0.5% forecast for Germany. France is forecast by the IMF to grow by 1% this year while the US is projected by the IMF to expand by 2.1%.
The Goldman economists said of the Brexit effects: “Our analysis shows that lower EU immigration has likely played a role in exacerbating labour market tightness and thus contributed to the UK’s higher inflation rates since 2016.” My column in The Herald on Wednesday observed that Scotland’s food and drink industry leaders deserve great credit for reminding the UK Government about the enormous economic damage from its immigration policy. They did so in a letter earlier this month to Secretary of State for the Home Department James Cleverly, warning him about the dangers of his “proposals to reduce net migration to the UK by increasing salary thresholds for skilled workers” alongside other planned measures.
Labour shortages
THE letter is from Iain Baxter, inset below, chief executive of Scotland Food & Drink. It is also signed by National Farmers Union of Scotland chief executive John Davidson, chief executive of Quality Meat Scotland Sarah Millar, Salmon Scotland chief executive
Tavish Scott, chief executive of Seafood Scotland Donna Fordyce, and Tim Bailey, chief executive of the
Scottish Agricultural Organisation Society.
They rightly point out: “Raising the skilled worker salary threshold to £38,700 will make the new minimum level higher than many of the vacant roles across the industry.
“This and the other changes planned will make it harder for businesses to recruit from overseas and for workers who might have considered applying.
“The impact will be worsened labour shortages, reduced profitability, higher prices and disruptions along the supply chain.”
The current threshold is £26,200, so what Mr Cleverly is proposing is a rise of 48%. Data from the Office for National Statistics on Wednesday showed annual UK consumer prices index inflation was 4% in January, unchanged from December.
Economists had projected a rise to 4.2% last month, as a result of a surge in household electricity and gas prices in January and base-year effects.
Naturally, the inflation figures were examined through the prism of what they mean for benchmark UK interest rates, which have been raised from a record low of 0.1% in December 2021 to 5.25%.
Martin Beck, chief economic adviser to the EY ITEM Club think tank, said: “Overall, the latest inflation data should reassure the MPC that the time to start cutting interest rates is approaching. The EY ITEM Club continues to expect the first cut in Bank rate in May.”
However, Sarah Coles, at stockbroker Hargreaves Lansdown, declared: “The Bank of England has already said it’s not going to cut in a hurry. A surfeit of caution means they won’t cut until lower inflation has bedded in, and we’re a fair way from that. There are still some economists forecasting a cut as early as May, but there’s every chance we won’t see this until the second half of the year.”
The outlook for interest rates is, of course, uncertain.
The damage to the UK economy from Brexit is, in contrast, not in any doubt whatsoever.
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