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Image: © frankieleon via Flickr

What has the Brexit vote done to the UK economy?

Forget what's going to happen after March 29th, what are we already living with?
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Image via Giphy

The first month of the year is usually a bit of a quiet one for Brits, as we all try to recover from the excess of the holidays via Dry January, Veganuary, or just I’m-not-going-out-it’s-bloody-freezing-anury.

But, thanks to Brexit, January 2019 is shaping up to be drama central. We’re barely two weeks in and not only have British MPs decimated the only Brexit deal the government managed to come up with since the June 2016 referendum but the Prime Minister has survived a no-confidence vote by the skin of her teeth.

Brexit Day is still set for March 29th 2019. But it’s anybody’s guess whether Britain will stick to that exit date, if it’ll stick to Brexit at all, what sort of Brexit it’ll have if it does Brexit, and what effect its eventual Brexiting-or-not-Brexiting will have on Britain and its economy.

So we decided to stop guessing. Instead of talking about what might happen to the UK economy in the future, let’s talk about what’s already happened to the UK economy since the Brexit deal:

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What has happened to the pound?

Since the Brexit vote, the pound has gone down against the euro. If you’d headed off on holiday to Spain in May 2016 with £100 in your pockets, you could have swapped it for €128. If did the same in December 2018, you’d get just €111. To describe this less-bang-for-your-buck effect economists say the pound has weakened or fallen.

A weaker pound is bad for Brits in some ways. Holidays to the continent get more expensive. It’s also more pricey for British businesses to buy stuff from the eurozone, which will probably mean British ended up paying more for their champagne and parmesan.

But a weaker pound has some benefits too because it makes the UK, and UK products, better value for other europeans. That should mean more tourists visiting (and spending more money in British businesses) and more British stuff being bought abroad.

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What has happened to migration?

For a good few years before Brexit vote, migration from other EU countries to the UK was pretty consistently going up. It peaked when the referendum took place, and has been going steeply down ever since.

In the year before the referendum, the net migration rate for EU citizens, which is the number of people who arrived minus the number of people who left, was just shy of 200,000. Now, the net migration rate for EU citizens is 74,000.

So there are still thousands more EU citizens living in the UK than there were at the time of the referendum. There’s just a lot less than there (presumably) would have been if the vote had been to Remain.

Falling EU net migration is good for Brits who want less EU migration, either because they have a personal preference for a more homogeneous nation or because they believe EU migrants take up scarce resources - like housing or jobs - that should be earmarked for Brits. (EU citizens, unlike migrants from elsewhere, had the automatic right to stay and work in the UK as long as they wanted).

But falling EU migration is bad for businesses and services that appreciate and rely on EU labour and talent. That includes farms and the NHS who hire a lot EU staff and think there's not enough suitable or willing Brits to replace them. And it includes British universities, who get prestige and bigger tuition fees when they attract lots of foreign students.

But is it bad for EU citizens? Many of them say that negative British attitudes towards migrants has caused them to suffer psychological distress (post-referendum there was a spike in racially-based hate crime in Britain).

But a lot of the reasons given by EU citizens for leaving the UK (or never turning up in the first place) is that they feel their economic chances are better elsewhere - particularly because the rest of the EU now has a stronger currency (see above) and faster economic growth (see below) than the UK.

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What has happened to jobs?

Fun fact: from the governments POV, not having a job is not what makes you unemployed (although, tbf, it’s a pretty crucial part). You also have to be older than 16, have been actively looking for work for a month and be able to start working a job within two weeks. So schoolkids, gap year students, stay-at-home parents, and people too ill to work aren’t counted.

Anyway, the unemployment rate in the UK has been going down since about 2012 and has continued to go down since the Brexit vote. At the same time, the number of jobs available has gone up. That’s important because if there weren’t lots of jobs around a low unemployment rate could just mean lots of people had given up looking for work entirely.

Unemployment is now lower than it has been at any time in 1975 and there are more jobs around than there have been since 2001. That should be good for workers, both because it’s easy to find work and because businesses have make an effort if they want to get and keep staff, which probably means offering higher wages. (Low unemployment rates can be bad for businesses for the same reason).

But! There’s a difference between being able to find work/workers and being able to find the type of work/workers you want. That’s why there’s still lots of complaints about many British jobs being exploitative (because they’re low wage, zero-hour contracts or freelance/gig economy work which doesn’t give out benefits like sick leave). And that’s why you still hear business bosses complaining they can’t get enough staff with the right skills.

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What has happened to economic growth?

Economic growth is a way to measure how much bigger (or smaller) an economy has become by looking at how many more (or fewer) goods and services it produced that year. Goods and services can be anything from cars to doctors performing surgery to six-lane motorways.

Economists add up the value of all these goods and services (forward slash make some educated estimations because literally counting everything would take far too long) and the total sum is the economy’s Gross Domestic Product, or GDP.

If you divide GDP by how many Brits there are, you get a rough idea of how well-off people in that economy are. Since the start of the 20th century, GDP per Brit has rocketed upwards. There have been blips (the 1920s Depression, the second world war, the 2008 financial crash) but the overall trend is still very much upward.

So in 2007, GDP per person was about £30k. Two years later, post-2008-crash, it had gone down to £28k a person. That was a big drop! (You’d feel a lot poorer if someone came along and physically took two grand out of your bank account right now, no?) But £28k per person was still much higher than GDP had been for pretty much all of the UK’s history. In 1990, for example, GDP per person was £21k. In 1980 it was £16k, in 1900 £5k and it 1700 just £1.7k.

Since the Brexit referendum, GDP has gone up by 0.6 percent. That means there’s more wealth to go around, but not that more wealth is going around. One of the major criticisms of GDP is that it doesn’t take inequality into account. Baking a bigger pie doesn’t feed more people if the first takers grab even bigger slices.

Post-Brexit vote, the economic gap between the south of England and the rest of the UK has got bigger. London, in other words, is scoffing more of the pie. But the income gap between individuals hasn’t changed much.

(Britain, which is one of the most unequal countries in the world in terms of income, saw inequality grow from the start of the ‘80s until the 2008 financial crash at which point it actually got a tiny bit more equal, mostly because a bunch of rich people lost a lot of their money).

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What has happened to national happiness?

Brexit is looming and Brits have never been happier. Happiness, life satisfaction and the feeling that life is worthwhile all went up between June 2016 and June 2018 (although not by loads). On average, Brits now rate themselves as at least a seven-and-a-half out of ten for each.

Is that because of Brexit? Perhaps for one or two people (it’s a good time to be a Rees-Mogg, after all) but in general probably not, because a big proportion of people - 69 percent - say they think Brexit is ‘going badly’. So what's making Brits so chipper?

Lots of stuff, according to the national statistics agency, the ONS. It links improved wellbeing to things like rising disposable incomes (i.e. spare cash to spend on stuff that makes you happy), people feeling like they have more leisure time and more people running around in nature (no, seriously).

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So, has the Brexit vote changed the British economy? Most likely. But so has lots of other stuff.

Which is perhaps something we should all bear in mind as the drama in Westminster piles up: regardless of how the eventual Brexit/no-Brexit we end up with alters our economy, it won’t be the only thing that matters and it won’t be the only factor in how positive we feel about our lives.

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Reader Comments

  • Interesting story. I’m planning a business trip to Prato. Hopefully I will find what I need there.