The short term economic disruption is largely due to Covid and is experienced throughout the world. The UK faces structural adjustments that are down to Brexit and are likely, over the medium to long-term, to make the UK...poorer.
How much of the economic disruption is due to Covid and how much to Brexit. For the UK, the issue is not simply that of post-pandemic disruption, but also the early impacts of the decision to leave the European Union, replacing our membership of the Single Market and customs union with a minimal free trade deal.
This report explores the extent to which current problems in the UK economy are down solely to post pandemic disruption or also the result of the altered terms of trade and labour mobility with the EU.
Brexit-specific effects, resulting from new barriers to trade and labour mobility, are...clear. And while the impact of the pandemic will fade relatively quickly, that of Brexit will not. In some areas, such as trade and migration, it may even grow over time.
There is no evidence that labour shortages will lead to a high wage, high-skill economy; reducing labour supply does not boost productivity, the main driver of real wages. Reduced migration from Brexit may raise some wages but spending power could be eroded by higher inflation. In addition, Brexit so far has signally failed to boost our exports to non-EU countries.
The overall picture is one of short-term disruptions, mostly due to the pandemic, that are common to most countries. However, on top of this, the UK faces structural adjustments that are down to Brexit and are likely, over the medium to long-term, to make the UK somewhat poorer. This does not bode well for Boris Johnson’s vision of a “high-wage, high productivity” economy.