Brexit at 10: UK economy still paying a heavy price, says IfG

Ten years on from the Brexit vote, Britain’s economy is measurably smaller, less open, and more detached from its largest trading partner than it would otherwise have been — and the costs, according to a new assessment by the Institute for Government, aren’t going away anytime soon.

The numbers don’t lie

The IfG’s analysis, released as part of its Brexit at 10 series, estimates that the UK economy is roughly 4 to 5 percent smaller than it would have been had the country remained in the European Union. That’s not a projection or a model artefact. It’s the accumulated drag of reduced trade, lower investment, and a labour supply that shrank almost overnight when freedom of movement ended.

Goods trade with the EU fell sharply after the Trade and Cooperation Agreement came into force in January 2021. Non-tariff barriers — customs checks, rules of origin requirements, sanitary and phytosanitary controls — added friction that didn’t exist before. Small exporters, in particular, simply stopped selling to European customers. It wasn’t worth the paperwork.

Investment and productivity took the hit

Business investment in the UK has lagged behind comparable economies consistently since 2016. Companies delayed decisions, waited for clarity that was slow to arrive, and in some cases relocated operations to EU member states. The financial services sector lost an estimated 7,000 jobs and around £1.3 trillion in assets to Amsterdam, Dublin, Paris, and Frankfurt in the years immediately following Brexit.

Productivity, already the UK’s stubborn weak spot, didn’t recover the way it might have.

Still, the picture isn’t uniformly bleak. Some sectors adapted. Freeports were launched. The UK struck trade deals with Australia, New Zealand, and — eventually — joined the CPTPP. But the combined economic weight of those agreements is a rounding error compared to what was lost by stepping back from the single market.

What the government says

A spokesperson for the Treasury said the government “remains committed to growing the economy and maximising the opportunities that come with our independent trade policy,” while acknowledging that there are “areas where the relationship with the EU can be improved.” The reset talks ongoing between London and Brussels have raised modest hopes of easing some of the worst trade frictions, particularly around agricultural goods and mobility for touring artists and business travellers.

Where things go from here

The IfG stops short of calling for rejoining the EU. That’s not on the political table from any major party. But its researchers are clear that the current arrangement leaves significant economic gains unrealised, and that incremental improvements through bilateral agreements will only go so far.

The next decade will test whether Britain can find a growth model that works outside the EU’s orbit — or whether the costs recorded so far are just the beginning of a longer reckoning. The anniversary offers a moment to assess honestly. The evidence, at least, is no longer in dispute.