9 years after the vote on Brexit, the most recent UK financial indicators ship a robust message about an ailing economic system that’s but to emerge from the shadows of the ‘go away’ vote. In accordance with consultants, among the unfavorable impacts of Brexit will endure.
GDP has been contracting for 2 consecutive months, coupled with rising inflation and unemployment, and accompanied by a extremely unsure geopolitical atmosphere and commerce wars.
UK GDP grew by 0.7% quarter-on-quarter within the first three months of 2025, however month-to-month knowledge exhibits that the output contracted 0.1% in Might after a 0.3% decline in April. In accordance with S&P World Rankings, these figures put the economic system heading in the right direction for 0.1% GDP progress within the second quarter, if there isn’t a progress in June.
Inflation elevated to three.6% in June — up from 3.4% in Might and barely forward of expectations. This ties the palms of the Financial institution of England, which is aiming for a 2% inflation goal earlier than it lowers the benchmark price, at the moment sitting at 4.25%.
These weak datasets point out that the UK has “little spare capability to develop,” Marion Amiot, Chief UK Economist at S&P World Rankings, informed Euronews Enterprise.
Some hope that the UK will have the ability to enhance its GDP by exports, supported by commerce agreements, together with the most recent with the US.
Nonetheless, exports alone won’t be sufficient to repair a elementary downside: the UK is contending with cripplingly low productiveness.
In accordance with Amiot, productiveness woes partially stem from Brexit. “It has contributed to lowering the UK’s labour provide and pulled the brakes on funding on the again of uncertainty within the years following the referendum,” she mentioned.
She added that sluggishness in the important thing monetary providers sector has additionally been taking part in a task: “Productiveness progress within the UK has been significantly weak for the reason that Nice Monetary Disaster, particularly within the monetary sector.”
UK labour statistics are additionally signalling a tough path forward for the economic system. The variety of job vacancies has been falling since April 2022. Unemployment within the nation has been on the rise since August 2024, and sat at 4.7% in Might, the very best stage in 4 years.
As poor productiveness limits wage progress, that is anticipated to sluggish inflation.
“Wage progress has slowed, and unemployment has risen once more. For the Financial institution of England, this can be a signal of rising slack within the labour market, which is prone to ease inflationary pressures, and means it will probably lower charges sooner slightly than later,” mentioned Sarah Coles, head of private finance at Hargreaves Lansdown.
Job vacancies have additionally been falling as a consequence of larger prices, partially attributed to the UK authorities’s determination to extend nationwide insurance coverage contributions, a price that employers pay for each individual on the payroll.
What Brexit actually value the UK
9 years after the referendum, the Workplace for Price range Accountability (OBR) assessed the financial impression of Brexit. Researchers got here to the conclusion that — since 2020 — withdrawal from the EU has led to diminished productiveness, decreasing GDP by 4%, and commerce by about 15%, in each items and providers, in comparison with a ‘stay situation’. Brexit has additionally had a sizeable impression on shrinking investments.
In accordance with John Springford, an affiliate fellow on the London-based think-tank Centre for European Reform, Brexit has value the state £40 billion (€46.1bn) since 2019.
“The 2019-2024 parliament raised taxes by round £100 billion, and if we take the OBR’s 4% lack of productiveness to be the true determine, £40 billion of these tax rises have been wanted due to EU withdrawal,” he wrote in a current research.
Is the worst over?
“Brexit goes to have a long-term impression on UK progress past the preliminary fallout seen in commerce,” mentioned Amiot, including that “with a smaller pool of employees and weaker competitors resulting in decrease productiveness, the capability of the UK to develop will stay durably decrease”.
She clarified: “That being mentioned, a lot of the giant impacts are possible behind us.”
The years following Brexit got here with an elevated uncertainty for companies, and left a sizeable impression on funding, which stagnated for 5 years, earlier than it returned to progress. Funding is now rising once more and has surpassed its pre-Brexit referendum ranges. In accordance with the Workplace for Nationwide Statistics (ONS), gross mounted capital formation (GFCF) and enterprise funding each elevated to document ranges within the first quarter of 2025.
Commerce with the EU additionally struggled, however that might have been partially attributed to a spread of different elements, together with the impacts of the COVID-19 pandemic and the worldwide slowdown of commerce in items.
“Though a lot of the preliminary financial disruption has possible pale as companies adjusted, Brexit nonetheless seems to be weighing on export ranges and GDP,” Andrew Hunter, Affiliate Director at Moody’s Analytics, informed Euronews Enterprise.
He added that items exports to the EU are nonetheless 16% decrease in actual phrases, in comparison with the tip of 2019 (earlier than the pandemic and earlier than the UK started leaving the EU).
“And items exports to non-EU nations have truly carried out even worse,” Hunter mentioned. He added that the UK has considerably lagged behind different superior economies on this respect, as a consequence of a “broader hit to the export sector from Brexit-related commerce obstacles (with many companies selecting to cease exporting altogether because of the added prices and paperwork).”
Many hope the current commerce cope with the US will enhance the economic system by attracting funding into the nation.
And the US-UK commerce deal supplies reduction for sure industries particularly. Whereas the EU is finalising its potential countermeasures, together with a tariff on US plane imports, nearly sure to draw a retaliation, the UK has secured free commerce for its aerospace sector.
But, consultants are sceptical concerning the general contribution of the commerce deal to the UK economic system. S&P World Rankings estimates “that US tariffs are going to characterize a direct drag on UK GDP of round 0.1 proportion level this yr and subsequent,” partly as a consequence of weaker world demand.
And different commerce offers are additionally unlikely to spice up exports an excessive amount of. “The UK authorities’s current ‘reset’ cope with the EU has eased some commerce obstacles, significantly for meals and agriculture, however additional progress is predicted to be sluggish,” mentioned Hunter, including that he doesn’t anticipate a robust export rebound in gentle of world commerce uncertainty.
In accordance with Springford, Free Commerce Agreements (FTAs) signed since Brexit have had a really restricted impression.
“The macroeconomic good thing about the brand new FTAs the UK has signed may be very small, solely offsetting the 4% loss from Brexit by about 0.2%. Even when a full FTA have been signed with the US, that might rise to about 0.35%.”
A clouded UK financial outlook
Within the brief time period, the at the moment ailing financial output has been fuelling expectations that the federal government must make up for the lacking tax income by climbing tax charges within the second half of the yr, additional constricting GDP progress.
In the long term, consultants agree that the UK’s progress will likely be slower than if it had stayed within the EU. This is because of the truth that the structural modifications related to dropping entry to the EU market have meant that the UK is lacking out on employees, funding and commerce alternatives.
Wanting forward, the first supply of uncertainty and threat stays productiveness, in line with the Chief UK Economist at S&P World Rankings.
“Whereas most forecasts anticipate a rebound in productiveness that might help stronger progress, the outlook is clouded by uncertainty across the implementation of presidency progress insurance policies and the tempo at which AI applied sciences will likely be adopted,” Amiot mentioned.