As the dust settles after the emotional British breakup decision, the cost of leaving the European Union turns out to be far higher than the benefits it was expected to confer. The hope that Britain will gain greater freedom from the EU bureaucracy while retaining lucrative access to the pan-European market has turned out to be a chimera. The greater freedom U.K. negotiates will lessen access to the common market. Revisiting the question might allow the electorate to revoke its decision, but voters may not go along.
The negative consequence of Brexit is already evident in falling growth rate. The Economist Intelligence Unit in January expected the United Kingdom’s annual growth of GDP to average 1.9 percent a year from 2017 to 2019. The Economist Intelligence Unit now expects zero growth, falling investment, and rising debt/GDP levels. The United Kingdom, representing only about 3.5 percent of global GDP, will have limited bargaining power in trade negotiations compared to the 20 percent or so that the EU, including the U.K., had in 2015. Many U.K. banks and financial services are likely to be constrained, their status reduced, as they no longer have the same access to the vast European market. Tighter migration controls—a major point of the Brexit vote—will further reduce the quality of the labor force without clever parsing of applications.
In addition to low growth prospects, many northern English cities will lose EU infrastructure funding and struggle to attract either private investors or national support from a strapped government. The United Kingdom itself may well split, with Scotland leaning toward leaving and Northern Ireland facing difficult decisions. This would further shrink the size of the remaining portion of the U.K. and remove valuable North Sea resources, even while diminishing and expensive to extract at current oil prices, and military bases. Clarifying new arrangements with the EU may take a decade, and uncertainty during that period will depress investment.
Former Prime Minister David Cameron had tried to open a warm bilateral relationship with China, but the likely cancellation of nuclear projects, while economically justified, will also put a chill on relations with Beijing and affect economic ties with France, China’s co-partner for the project.
