Could a return to the EU fix Britain’s broken economy?
- Since leaving the European Union, the UK has been contending with slowed growth, reduced trade and a weakened pound, made worse by high energy costs
- But whether rejoining the EU would fix these problems, and whether the bloc would take Britain back in the first place, is far from certain
Since the so-called Brexit, UK growth has suffered, Britain’s trade deficit has worsened, public sector finances are in a dire state and the economy is crying out for new regional investment which has dried up from the EU.
In hindsight, Brexit looks like it was a bad mistake for many Britons, with recent polls suggesting a majority of voters would think twice about jumping ship from Europe if offered the opportunity to vote again.
With the next general election less than two years away and the UK economy slipping down the global performance tables, Britain’s return to the EU’s ranks may become a burning issue for voters in the not-too-distant future.
Austerity cuts are hitting the economy hard through the government’s squeeze on public spending, while private-sector companies are shelving new investment plans while the economic outlook remains so uncertain.
The sharp rise in the UK trade deficit is also dragging on growth as exports into Europe continue to struggle. The Organisation for Economic Cooperation and Development (OECD) forecast that the UK economy could contract by 0.4 per cent next year, growing as low as 0.2 per cent in 2024. The chances are that the outcome will be worse.
Britain’s trade performance has been deteriorating for years but has got a lot worse since leaving Europe, the country’s main trading partner accounting for 42 per cent of all UK exports and 50 per cent of all imports in 2020. Since leaving the EU’s single market, trade barriers have risen for UK goods going into Europe, import duties have been imposed and the ease of access for UK companies exporting into Europe has been made a lot worse.
Brexit has meant a loss of key business opportunities in the past few years as some UK companies have opted to relocate into Europe to avoid trade restrictions and to enjoy easier freedom of movement in the single market.
The exodus of British manufacturing abroad has aggravated the trade gap, while the loss of some euro-denominated financial trading for closer EU control means the City of London’s dominance in European markets, a major earner for the UK economy, is under serious threat.
Whether these areas of business could ever be recovered by a UK return to Europe is questionable. So too is the issue of whether Europe would ever want to see the UK back in the EU fold given the political ructions caused by Brexit in recent years. Out probably means out in Europe’s book.
Britain is left with making the best out of a bad job, enduring life left out in the cold. The quandary is whether Europe’s weak growth outlook could offer any hope of fixing Britain’s broken economy in future? The jury is out on that one.
David Brown is the chief executive of New View Economics