Brexit Impact Confirmed as UK Productivity Faces £40bn Hit, Budget Reveals
New forecasts indicate that Britain’s economic performance has been significantly weakened by the decision to leave the European Union, potentially adding £40 billion to government borrowing by the end of the decade.
The impact of Brexit on the City of London is becoming increasingly clear, with financial hubs in Frankfurt, Madrid, Milan, and Paris experiencing growth at the expense of the UK capital. Rob Rooney, former top executive at Morgan Stanley in London, oversaw the relocation of hundreds of bankers and billions of pounds of assets to Frankfurt following the 2016 vote. “Frankfurt, Madrid, Milan and Paris are all doing better than they were. It has been at London’s expense. There is no question about that,” Rooney stated. More than 440 City companies have followed suit, moving almost £1 trillion – roughly 10% of the UK banking system – to EU financial centers. This shift in financial activity underscores a broader trend of economic divergence since the UK left the EU.
Shadow Chancellor Rachel Reeves has directly attributed Britain’s recent growth weakness to the 2016 leave vote, anticipating a downgrade in public finances. The Office for Budget Responsibility (OBR) is expected to reveal dramatically weaker productivity forecasts, partially due to Brexit, contributing to the £40 billion shortfall against the government’s fiscal rules. Reeves recently acknowledged the OBR would be “pretty frank” about post-Brexit growth falling short of expectations. While productivity growth has been a global challenge, the UK’s performance has been notably worse than its peers, a situation exacerbated by the disruption of trade barriers – you can learn more about the economic effects of trade barriers here.
Since the end of the EU transition period in 2020, UK exports have lagged behind the G7 average, particularly in sectors like cars, chemicals, pharmaceuticals, and food. Despite services exports performing relatively well, the financial sector has been negatively impacted by lost access to EU clients. Experts like John Springford at the Centre for European Reform note that the UK’s financial services output has been weak since 2016, with limited investment in the sector. The situation highlights the importance of a competitive financial sector for overall economic health, as discussed in recent reports on financial stability from the Bank of England.
The Chancellor is expected to present plans to the OBR outlining how Labour’s policies can improve productivity, including planning reforms and trade agreements.
