Competitiveness of UK damaged by Brexit, study suggests

Brexit has damaged Britain’s competitiveness, reducing productivity and workers’ real wages in the years ahead, according to a new study.

A new report from The Resolution Foundation, in collaboration with the London School of Economics, has found leaving the EU has reduced how open and competitive Britain’s economy is.

The research also states the immediate impact of the referendum result has been clear, with a “depreciation-driven inflation spike” increasing the cost of living for households, and seeing business investment falling.

The UK has not seen a large relative decline in its exports to the EU that many predicted, although imports from the EU have fallen more swiftly than those from the rest of the world, the study suggested.

Photo taken on November 19, 2019 - Boris Johnson wears boxing gloves emblazoned with "Get Brexit Done" Photo by Frank Augstein via Getty Images

Output of the fishing industry is expected to decline by 30 per cent and some workers will face “painful adjustments”, said the foundation.

The report said Britain has experienced a decline of 8 per cent in trade openness – trade as a share of economic output – since 2019, losing market share across three of its largest non-EU goods import markets in 2021, the US, Canada and Japan.

The full effect of the Trade and Co-operation Agreement will take years to be felt, but the move towards a more closed economy, say the authors, and will make the UK less competitive, which will reduce productivity and real wages, it was predicted.

The North East is expected to be hit hardest by Brexit as its firms are particularly reliant on exports to the EU. Scotland is set to outperform the North East and other parts of England with less exposure to the shrinking of advanced manufacturing.

The research estimated labour productivity would be reduced by 1.3 per cent by the end of the decade by the changes in trading rules alone, contributing to weaker wage growth, with real pay set to be £470 per worker lower each year, on average, than it would otherwise have been.

Sophie Hale, principal economist at the Resolution Foundation, said: “Brexit represents the biggest change to Britain’s economic relationship with the rest of the world in half a century.

“This has led many to predict that it would cause a particularly big fall in exports to the EU, and fundamentally reshape Britain’s economy towards more manufacturing.

“The first of these has not come to pass, and the second looks unlikely to do so. Instead, Brexit has had a more diffuse impact by reducing the UK’s competitiveness and openness to trade with a wider range of countries. This will ultimately reduce productivity and workers’ real wages too.

“Some sectors, including fisheries, still face significant change to come in the years ahead, but the overall services-led nature of the UK economy will remain largely unaffected.”

The study was released as foreign secretary Liz Truss said legislation relating to the Northern Ireland Protocol was “both necessary and lawful”, warning “we simply can’t allow the situation to drift”.

Ms Truss told MPs “we remain open to negotiations with the EU”, but added “in the absence of the EU being willing to change the Protocol, we are pressing ahead with legislation”.

Last week the Government tabled a Bill at Westminster that would empower ministers to override much of the contentious post-Brexit trading regime it agreed with the EU in the withdrawal talks.