Summary
Highlights
In 2016, the UK voted to leave the European Union, marking a significant moment in British history. This decision led to political shifts, with David Cameron and Theresa May resigning, and Boris Johnson ultimately securing a withdrawal deal. The UK formally left the EU in January 2020, entering a transition period that concluded in December of that year with the EU-UK Trade and Cooperation Agreement. This agreement established a new relationship with free trade in goods, but introduced new customs checks and regulatory requirements, particularly impacting the services sector. Five years after the trade deal, data and analysis are now available to assess the outcomes, moving the discussion from campaign rhetoric to economic reports and trends.
The economic debate surrounding Brexit was intense, with supporters promising freedom and new trade deals, while opponents warned of trade barriers and economic harm. The UK's exit coincided with global shocks like the COVID-19 pandemic and the war in Ukraine, complicating efforts to isolate Brexit's specific impact. Economists developed the "doppelganger" or synthetic control method to estimate what would have happened if the UK had remained in the EU. This method compares the real UK's performance to a synthetic twin of similar economies, allowing for the isolation of Brexit's effects. The evidence suggests the UK's economic path diverged from its peers after 2016, showing lost momentum and new challenges.
Major institutions like the OBR and LSE, using the doppelganger method, have consistently found that the UK's economy began to lag after the 2016 referendum. The initial shock hit the pound, leading to increased import costs and inflation, while business investment was delayed due to uncertainty. After 2021, when new trade barriers took effect, the divergence grew. By late 2024, studies estimate UK GDP to be about 5.5% lower than if it had stayed in the EU, indicating slower growth compared to its peers, rather than an economic contraction. Business investment stagnated, and trade intensity (exports and imports as a share of GDP) fell more sharply. The UK's economy became less open and less attractive for investment, illustrating a persistent drag.
Since 2016, UK GDP growth has fallen behind other G7 nations, and its pandemic recovery has been slower. The OBR forecasts a permanent 4% reduction in UK productivity due to Brexit. Business investment, crucial for growth, flatlined after the referendum and has not recovered, unlike in other G7 countries. Brexit-related uncertainty made firms hesitant to invest, and questions about regulation and market access persisted even after the trade deal. This has resulted in older equipment, slower technology adoption, and weaker productivity, impacting the UK's competitiveness. The investment gap is a significant concern for the future.
Brexit promised new global trade deals, and the UK signed agreements with countries like Australia, New Zealand, Singapore, and joined the CPTPP. However, the economic gains from these agreements are minimal, adding only fractions of a percent to GDP. Geography plays a crucial role; trading with distant countries is more expensive than with neighbors. The EU remains the UK's largest trading partner, but new customs checks and paperwork have created friction, particularly for small businesses, many of whom have stopped exporting to the EU. Studies show a significant drop in UK firms trading with Europe, leading to less integration into European supply chains and long-term consequences for competitiveness. The gains from global trade have not offset the new barriers with Europe.
Brexit has profoundly reshaped UK politics. The 2016 referendum cut across party lines, realigning voter loyalties. While the Conservatives united the 'leave' vote in 2019, governing proved challenging due to economic difficulties and practical issues stemming from Brexit. The Labour party, under Keir Starmer, now pledges to work with Brexit rather than rejoin the EU, seeking closer ties. The political debate has shifted from 'leave vs. remain' to how best to manage the relationship with Europe, with Conservatives favoring divergence and Labour arguing for alignment. The political landscape has been permanently altered.
Public opinion on Brexit has shifted since 2016, with polls showing a majority now believing it was a mistake. This is partly due to demographic changes, with younger pro-European voters entering the electorate and some 'leave' voters expressing regret. Despite this, there is little appetite for another divisive referendum or rejoining the EU. The public's mood is pragmatic, focused on improving the current situation and seeking practical solutions for a better trading relationship and stronger economy. One of the most challenging issues remains the Irish border. The Northern Ireland Protocol, while maintaining an open land border, created new checks in the Irish Sea, causing political disruption and anger among unionists. The 2023 Windsor Framework aimed to ease trade frictions, but the arrangement remains controversial and hasn't fully resolved constitutional concerns. Northern Ireland now has a unique status, aligned with EU rules while being part of the UK, a lasting and complex consequence of Brexit.
As 2025 ends, the UK is grappling with the consequences of its choices. Economic data consistently indicates that Brexit has slowed growth, trade, and investment, with new global trade deals failing to compensate for lost access to the EU market. The political discourse has shifted from reversing Brexit to managing its effects. Labour seeks closer ties with the EU, while Conservatives advocate for divergence. The public desires practical improvements over continued upheaval. The UK faces a crucial decision: to pursue a new economic model or gradually align with Europe. The upcoming election may clarify the path ahead, as Brexit's legacy will continue to shape the UK for decades to come.