By Andy Bruce
LONDON (Reuters) – Dashed hopes, so far at least, that Brexit would tip Britain’s economy back to trade and investment-led growth threaten another of Prime Minister Boris Johnson’s flagship policies: “level » areas outside of London.
Six years after the vote to leave the European Union, the classic British model of low productivity growth driven by consumption, supported in part by rising house prices, looks stronger than ever.
Britain has missed much of the global recovery in goods exports as economies reopened after COVID-19 shutdowns, leaving it bottom among wealthy industrialized countries in the Group of Seven by this measure over the past few years. last 12 months.
The Resolution Foundation think tank said this week that the lackluster performance reflects a more closed economy since Brexit.
It also represents a missed opportunity for Johnson’s upgrade program, which aims to reduce regional inequalities.
If UK goods exports had grown in line with the average of the other six G7 countries, they would have been worth around £38bn ($47bn) more in the year to April 2022, based on from a simple extrapolation.
This represents several billion pounds of lost revenue for UK factories and by extension regions outside London, as around 95% of manufacturing takes place outside the capital, according to official data from 2017.
The manufacturing sector accounts for only around 10% of UK economic output as a whole.
But it is a key driver of growth and investment in many parts of England and Wales which voted overwhelmingly to leave the EU in 2016, such as the East Midlands and North East regions.
Unless Britain can significantly improve its trade performance, it could mean more missed opportunities to upgrade.
“Regions that have likely asked for Brexit are most likely to have suffered the greatest negative impact from trade,” said Flaheen Khan, senior economist at manufacturing trade group Make UK.
On Wednesday, the Resolution Foundation said Brexit was unlikely to lead to a major restructuring of key sectors of the UK economy – but it would have leveling consequences.
“Our assessment reveals that the North East, one of the poorest parts of the UK, will be one of the hardest hit and that Brexit will increase its existing – and significant – income and productivity gaps,” said the think tank.
Estimates of regional economic growth suggest the scale of the opportunity already lost.
In the first quarter of 2022, London’s economy – dominated by service companies – was 2.6% above its level at the end of 2019, before the onset of COVID-19.
In comparison, no other regional economy in the UK, with the exception of Northern Ireland, had fully recovered to its pre-pandemic size.
GO WITH THIS
Brexit supporters say it is a long-term project that cannot be judged over the space of a few years before the benefits of independent trade and regulatory policy become fully apparent.
“The Project Fear regurgitations don’t seem to be getting anyone anywhere,” Britain’s Brexit Opportunities Minister Jacob Rees-Mogg said of this week’s Resolution Foundation report.
The UK government wants to boost exports of goods and services to reach £1 trillion a year at current prices by the end of the decade, up from their pre-pandemic level of £700 billion .
The highest inflation rate in the G7 is likely to be an important driver to achieve this target, but an improvement in underlying trade performance would go a long way to boosting economic activity in the UK.
Businesses need more help to achieve this, however, UK Chambers of Commerce have said.
He highlighted five practical measures that would boost trade with the EU, which accounts for more than 40% of UK exports, ranging from cutting red tape for food exports and a sales tax deal for small companies that digitally negotiate with the EU on industrial product marking and testing agreements.
“Businesses in the UK and EU still have a good relationship and trust in each other. We need policymakers to follow our lead and negotiate practical improvements to the Brexit trade deal,” said William Bain , responsible for commercial policy at the BCC.
Khan of Make UK said part of the problem for policymakers was that manufacturers had different needs in different parts of the country, with businesses in southern England seeking more spending on digital infrastructure, while those from the north demanded better transport links.
One thing that is shared across the country is the acceptance that Brexit is now an economic reality, for better or for worse.
“In an ideal world, commerce would be frictionless, but they’ve accepted that won’t happen and most businesses, despite the impact, are getting on with it,” Khan said.
($1 = 0.8148 pounds)
(Reporting by Andy Bruce; Editing by Toby Chopra)