Economist Shamubeel Eaqub details the ongoing economic impacts of the UK's slow withdrawal from the European Union – aka Brexit.
Photo: AFP / FILE
The Conservative government's attempts to negotiate an exit from the EU have been slow-going, with fundamental logistics of legal frameworks, borders and trade far from resolved.
The referendum on whether Britan should leave the EU was held in June last year.
This March, the government invoked Article 50 of the Treaty on the European Union, which started the clock ticking for withdrawal from the EU in March 2019.
In the next 18 months, negotiators face the huge task of untangling Britain's 42-year EU membership of the EU.
Prior to the referendum economists were largely unanimous in the view that leaving the EU would harm the UK economy.
So what has been the impact so far?
There has not been the economic disaster many predicted, however to all intents and purposes Britain remains in the EU, Eaqub says.
But dark clouds may be on the horizon.
Last week, the credit rating agency Moody’s downgraded the UK economy, which will make the cost of future government borrowing more expensive, he says.
“Compared with New Zealand, for example, the UK government has a lot of debt. Their debt to GDP ratio is around 90 percent, whereas New Zealand is 25 percent. So even small changes in interest rates can have quite a big impact.
“The downgrade is probably the first big sign that people are starting to really question how strong the UK can be.”
We can see a very real impact in migration to the UK – it has fallen off a cliff, Eaqub says.
“The UK has been a big net recipient of migrants. It had very high net migration coming from Europe. In the course of the last 6 months that has crashed from running at around 50,000 to less than 10,000.”
Fewer people are arriving and more are leaving, which may please Brexit supporters as immigration concerns drove the ‘No’ vote in 2016.
London has historically been a global financial centre, but some big organisations such as wealth management firm UBS are considering moving to France and Germany, Eaqub says.
“Two years is not a great deal of time at all and a lot of these big businesses we’re talking about are hugely complex, it’s not about moving a few key staff away.”
Then there’s the divorce bill.
Britain’s opening gambit was an offer to pay 20 billion euros 'alimony' post-Brexit.
The EU negotiators are unlikely to accept that, Eaqub says.
“[The EU] not only want to extract the money they will be losing by Britain leaving but also they want to recoup net transfers that have taken place to the UK in the past. That could be some large sums of money.”
British negotiators are trying to keep the divorce bill down and maintain the best possible terms for Britain.
“They’re trying to secure good terms for the UK to still participate in the EU legal network and participate in same ways in open trade. They’re trying to have their cake and eat it too. It’s really difficult to see why those EU countries are going to give up so much when they don’t stand to gain much.”
While UK officials are busy negotiating in Brussels, politicians have been on a charm offensive in other parts of the world looking for new potential trading partners, particularly Commonwealth countries.
But this is unlikely to compensate for the loss of access to Europe.
“Many of these countries are not going to be as rich or as big or physically as close as Europe. It’s not a like for like. It will not replace the value chains and networks that they’re so closely integrated with now.”
