The Brexit at risk

« I have nothing to offer, but blood, toil, tears and sweat”, Churchill

Triggered in 2016 (following a referendum), Brexit became a reality in 2021 because of the entry into force of the ACC protocol (Trade and Cooperation Agreement) signed with the European Union (a divorce amicable?). This unprecedented event (partial disintegration of a common market) has given rise to many promises and hopes on the part of British sovereignists (Nigel Farage) and part of the Conservatives (Boris Johnson), but this enthusiasm has partly fallen. A few months before the third anniversary of this divorce, there will be no « Happy Brexit Day » and the British public opinion is today largely dubious (it is the «Bregret » or feeling of having made the wrong choice).

Several perils have affected or are looming over the British economy. According to the forecasts of the International Monetary Fund (IMF) and the Office for National Statistics (the British equivalent of INSEE), there is simultaneously a weakening of growth (-0.5% for GDP in 2023), a sharp rise in inflation (+10.5% in 2023) and a shrinking workforce available to firms (labour shortages). The introduction of visas and various red tape has deprived the UK economy of nearly 400,000 European workers who could have partially filled the labour shortage faced by UK employers.

In the field of finance, the United Kingdom suffered the full brunt of the loss of the European passport which allowed transactions in euros without being in the eurozone. Moreover, the financial center of London has lost its hegemony in favor of Paris (even if it remains an important financial hub).

It should be noted that these trends give pride of place to the quarrels of experts, indeed it is often difficult to disentangle what is due to Brexit, what results from the war in Ukraine or what was the consequence of the health crisis.


Will you trade with me ?

The trade issue of Brexit is fundamental, but a complete break in free trade agreements was unlikely from the start, the United Kingdom retains the possibility of reintegrating EFTA (area including Norway, Iceland and Switzerland), to implement the favoured nation clause under the World Trade Organization (WTO) or to negotiate agreements on a case-by-case basis. The British do not want to become a protectionist fortress, but rather be bound by less restrictive trade agreements.

As the EU is the main trading partner of the United Kingdom, the ACC leads to the reconstitution of trade barriers (quantitative restrictions, health standards and regulations). This has automatically led to a restructuring of comparative advantages, a weakening and a reorientation of trade flows.

On the other hand, balance of payments data show that the United Kingdom remains attractive to foreign investors (particularly for Japanese in the automotive sector): foreign direct investment flows (FDI) recovered despite a drop-out in the 2016/2019 period. The fog that had settled between the result of the referendum and the effective implementation of Brexit (and which had penalized productive investment) is now dispelled.

As Lequesne and Chopin say : « The Brexit debate does not concern only the future of the UK in the EU. It rises deeper questions, on the one hand about a possible disintegration of the EU and on the other about the relationship between the eurozone and the EU as a whole. »

Nevertheless, the main challenge of Brexit remains identity, so it is difficult to bring it back only to financial criteria. For now, the leaders of the Labour and Conservative parties are not prepared to engage in a renegotiation of the EU exit agreement despite proven deleterious effects on trade, finance and the economy.

However, it is not impossible that favourable economic effects will eventually manifest themselves (better control of economic policy, greater competitiveness due to a fall in the pound sterling). It would be wrong to bury too quickly the United Kingdom, which has shown incredible rebound capabilities in the past.

Rule, Britannica !



Baker & al., ”Post-Brexit imports, supply chains, and the effect on consumer prices”, UK in a changing Europe, 2022.
Berte, ”Royaume-Uni: le Brexit fait chuter le commerce extérieur”, Eco Flash, n°22-15, BNP Paribas, 2022.
Blomm, P. Bunn, S. Chen & al., ”The impact of Brexit on UK firms”, Working paper, n°26218, National Bureau of Economic Research, 2019.
Lequesne et T. Chopin, « Differentiation as a double-edged sword: member states’ practices and Brexit”, International Affairs, n°92 (3), pp. 531-545, 2016.
Springford, ”What can we know about the cost of Brexit so far”, Policy Brief, Centre for European reform, 2022.
Teulon, “The causes of Brexit”, IFU-PEM Flash n°4, 2023.

The experts who participated in this Flash:
Frédéric TEULON
Agrégé d’économie, Ancien élève de Sciences Po Paris et de l’ENS Paris-Saclay