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My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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BREXIT: it just won’t go away

Updated: Nov 23, 2022

BREXIT is back in the news, certainly here in the UK, as the government fends off lingering complications of the divorce from the EU and searches for ideas to improve the shrinking UK economy. I have avoided writing about this topic for two reasons.

  • BREXIT remains a divisive topic in the U.K. even though the referendum to leave the EU occurred over six years ago (June 23, 2016), and the U.K. formally left the EU nearly two years ago (January 30, 2020).

  • BREXIT is in the past. It’s a done deal. Therefore, the country needs to move on and play the hand it’s been dealt the best it can.

Political and economic aftershocks

Moving on sounds easy on paper, but this has proven to be extremely difficult. Wounds from the UKs separation from the EU remain deep and increasingly visible, whether you focus on the politics or the economics of the decision to leave. Let me touch on both.

  • Politics: The UK is now on its fifth Prime Minister since the referendum[1], reflecting a Tory-led government largely jumping from crisis to crisis. Boris Johnson, one of the most vocal and influential MPs to campaign for the UK to leave the EU, benefitted as Prime Minister from the distractions caused by the pandemic, which effectively subordinated concerns about BREXIT for a period of time. However, even Mr Johnson was unable to pull a rabbit out of the hat as BREXIT issues have moved back to the forefront (although he was mainly undone perhaps by his well-documented “misbehaviour(s)” during the pandemic). Two other political issues that are BREXIT-related come to mind:

o There is no apparent solution to the issue of a border between Ireland (EU) and Northern Ireland (UK). The border either has to be on land between Northern Ireland and Ireland, or in the Irish Sea, the latter a de facto nod to Northern Ireland essentially remaining in the EU as far as trade. How to (re)impose a land border without re-opening wounds from the Good Friday Agreement signed in 1998 (see here) to end the Troubles has proven elusive.

o The decision to hold a referendum regarding EU membership in 2016 most certainly opened the door for the countries in the UK asking for a similar referendum to opt out of the (UK) union. The Scots have been the most vocal. Recall that the Scots voted to remain in the UK in September 2014 by a 55% (remain in UK) - 45% (leave UK) vote.

Can the UK government justify not giving Scotland another referendum should they request

it, since the Scots were dragged out of the EU with the rest of the UK in 2016? This is

especially sensitive since Scotland as a country voted against leaving the EU by a wide

margin (62% remain, 38% leave).

  • Economics: The economic damage to the UK from exiting the EU is increasingly clear:

o The U.K. is the only G7 country with GDP lower now than before the pandemic, showing economic lethargy and the lack of economic tools in its toolbox to address the post-pandemic recovery. BREXIT has most certainly played a role.

o Sterling fell the day after the BREXIT vote to a 30-year low (since surpassed), and has never recovered, worsening recently when the government of Liz Truss proposed a fiscal stimulus plan that investors resoundingly rejected.

o Bilateral trade agreements involving the UK post-BREXIT have been few and far between. The important trading relationship between the UK and EU was outlined in a Trade and Cooperation Agreement[1], agreed in December 2020 and signed off on by the European Parliament in May 2021. To give you some context on the importance of trade between the UK and EU, the EU purchased 50% of goods exported from the UK in 2019, whilst the UK purchased only 12.6% of goods exported from the EU. In a “BREXIT Analysis” report provided by the Office For Budget Responsibility in May 2022 (here), the OBR wrote that:

  • The Trade and Cooperation Agreement’ (TCA) that came into effect on 1 January 2021, will reduce long-run productivity by 4 per cent [in the UK] relative to remaining in the EU,

  • Both exports and imports will be around 15 per cent lower in the long run than if the UK had remained in the EU, and

  • New trade deals with non-EU countries will not have a material impact, and any effect will be gradual…. This is because the deals concluded to date either replicate (or ‘roll over’) deals that the UK already benefited from as an EU member state, or do not have a material impact on our forecast.

How did we get here?

In 2016, a slim majority of U.K. citizens voted to leave the EU, favouring self-determination and immigration control over the economic strength realised by being part of the world’s largest trading bloc and largest single market. At the grassroots level, BREXIT was pitched as a way to break free of the EU’s cumbersome and bureaucratic rules and processes, including being overseen by the European Court of Justice[3]. Immigration could be better controlled, which I interpret to mean tighter immigration rules would “keep foreign workers from taking the jobs of Brits.” That’s a small country mentality for sure! Leaving the EU also opened the door for the UK to arrange its own (and implied better) trade agreements with partners around the world.

This all sounded so promising on paper (and recall the pitches from Leavers!), but it glossed over many of the issues that the UK is facing today. For starters, how could a country as small as the UK (vis-à-vis the US, the EU and China, for example) have leverage in cutting more favourable trade deals with its major trading partners, including the “giant to the east”, the EU? And how about that thorny issue of an Irish border that keeps resurfacing? I don’t recall this issue being discussed at all at the time of the referendum. The current economic deliemma in the UK speaks for itself. If you want to lay the UK’s weak economy at the feet of the pandemic, recall that the UK’s response to the pandemic was far better and more organised than most countries, including the EU, but still the country finds itself in a much worse position economically at the moment. I am not going to open the issue of skyrocketing energy costs caused by Russia’s invasion of Ukraine but suffice it to say that the EU is much closer to ground zero in this respect than the UK.

The EU - its role in BREXIT

I am not going to elaborate on the EU in this article but I do have some sympathy (just a bit) for those who claim that the EU brought the UK referendum on itself. The governance of the EU (via the European Parliament and the European Commission, amongst other bodies) looks bloated, and its legislation can be cumbersome and not always moving in the direction / interests of many of its members. Economically, many countries in the EU – both in and out of the Euro (common currency) ­­– have a more socialist bent than in the UK, with slower economic growth and higher unemployment historically (than the UK). Having said this, the UK was in the EU for 47 years, and its economy was strong and reasonably resilient, with both the Pound and the government bond market well respected internationally. Unemployment was lower than most of the other EU member-states, and its labour market was more flexible and structurally sound. As a result, it is difficult to make a case that the UK suffered economically when it was in the EU.

I am not sure that the UK will be the last country to leave the EU, and some other member-states are already grumbling. Unlike the UK’s reasons for leaving the EU, the rationale for the next EU member-state to leave would probably be more economic-driven, i.e., so as to avoid the tight fiscal constraints imposed by the EU in ordeto ensure economic stability (arguably more of a Euro than EU issue but intertwined in the minds of voters). Although purely conjecture, my view is that a departure on these grounds would almost certainly lead to an immediate downward spiral for the exiting country, a much more dire and immediate effect than when the UK left the union. The reason is that the UK was on reasonably solid economic ground leading up to the referendum, so the effects of leaving the EU formally in 2020 have been more akin to death by a thousand cuts than an immediate crisis. It is clear that the issues which provided impetus for the UK to exit the EU were not economic, but were mainly political, of which immigration was a very big component. Now many seem to be second-guessing this trade-off.

Moving forward

The pandemic took BREXIT off the front page for nearly two years. However, as the pandemic abates, the extreme duress being felt now by the British economy has moved back to the forefront. Recall the disruption under the brief leadership of former PM Liz Truss, when investors punished UK Gilts and Sterling, clearly boxing in the country’s leaders as far as the economic way forward. The steady hands of new (and current) PM Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt have brought stability to the UK financial markets for the time being, but the economic malaise is just beginning. The UK economy is mired in a state of stagflation characterised by high inflation and a shrinking economy. The combination of tighter monetary policy and now fiscal prudence should bring inflation down relatively quickly. However, restoring the UK economy to growth will take several quarters, according to the Bank of England which is saying growth will not turn positive until the second half of 2024 (“Monetary Policy Report – Nov 2022”, here). Today, the OECD released its latest update for global economic growth (here). The OECD expects the UK to be the next to worst performing economy in the G20 in 2023 and 2024, with only Russia being worse.

Given the poor state of the British economy, the Sunak government is quite rightly floating trial balloons as to how to more quickly and solidly return the economy to growth against strong headwinds. One such idea in the press over the weekend was to move the UK closer to a relationship with its largest trading partner - the EU - similar to that which Switzerland currently enjoys with the EU (although it is not a member). I was shocked at how quickly this idea was rejected by the far right hard-core members of the Tory party, especially since the Swiss economy is a bastion of stability and financial strength whilst UK economy withers away. Why shouldn’t the UK government aspire to being Swiss-like given the UK’s challenging outlook?


BREXIT has not been, and is unlikely to ever be, advantageous to the UK economy. It is of course appealing to voters which have aspirational dreams of Great Britain returning to the time when it was a large, extensive and powerful empire. Unfortunately, these aspirations cannot be realised because the rest of the world has moved on. Rather, the UK should focus on the moment and try to find a middle-ground where it remains outside the EU but negotiates with the EU in order to strike a more mutually advantageous trade deal (including free movement of labour) to help the UK economy recover from this difficult period that is almost certain to get worse. Going back into the EU is a step too far, but a Swiss-like deal sounds like it might make a lot of sense, even if it comes with strings attached. The facts speak for themselves, and the Tories are doing their party no favours by digging in their heels given the political and financial instability the country has experienced recently and the dire outlook ahead.


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[1] David Cameron (2010-2016, resigned following referendum), Teresa May (2016-2019), Boris Johnson (2019-2022), Liz Truss (2022) and Rishi Sunak (2022-present). [2] The UK-EU TCA is summarised on the UK government website here. [3] You can read more about the European Court of Justice here.

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5 bình luận
24 thg 11, 2022

Speaking of BREXIT, #BloombergOpinion (Opinion) wrote an excellent piece that was released this morning, and this catchline sums up my views perfectly: "Rishi Sunak says he isn’t interested in a Swiss-type model of partnership with the EU. He should be." Check it out:


Jim Siracusa
Jim Siracusa
23 thg 11, 2022

Good choice of topic. Having been discussed endlessly before the country left, it has become a taboo subject since. No politician or party has the fortitude to say the country is poorer, with lower prospects and a lower international standing post-Brexit.

The reasons for this originate in why the country had the referendum and manner in which in the information and disinformation was disseminated to the voting public. The referendum was all about Cameron trying to control the right wing of his party. His failure to read the country's mood was clear at the time and even more obvious now. He is a clodhopper that should be prohibited from any office, private or public.

The public made its choice based…

24 thg 11, 2022
Phản hồi lại

Super good comments, Jim, thank you. I could not agree more. First step should be acknowledgement by hardcore BREXITer's that they got just what they wanted as far as leaving the "shackles of the EU" but it has indeed come with severe and increasingly visible economic costs. Certainly, this was not part of the original spin. I really appreciate you taking the time to respond, these are terrific insights.


23 thg 11, 2022

Tim- Terrific, well-researched and thoughtfully presented discussion of the background and impacts of Brexit. So where are all the so-called "Brexiteers" ready defend their position and the misguided, reckless rationale behind it? That would be the increasingly irrelevant right wing of the broken Tory party. let's hear from you!

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