UK Economy Weakens Post-Brexit – Can the Worst End?

Unpacking the Economic Aftermath of Brexit

The United Kingdom’s exit from the European Union has introduced a range of durable changes to its national economy. Despite many of the effects persisting over time—such as reduced productivity—industry analysts remain divided about whether the most severe challenges have already passed.

Key Long‑Term Economic Indicators

• Productivity Growth: The UK’s labor output has plateaued and now lags behind its European neighbors.
• Trade Imbalances: The post‑exit tariff regime has re‑configured import and export flows, impacting sectoral competitiveness.
• Investment Levels: Foreign direct investment has steadied at lower levels, reflecting heightened market uncertainty.

Insights from Economic Experts

To gauge the current trajectory, Euronews Business consulted a panel of specialists who question whether the most daunting period has concluded. The consensus suggests that while certain negative trends have stalled, significant vulnerabilities remain.

UK Seeks GDP Growth Through Exports Amid Productivity Challenges

Export Strategy and Trade Agreements

Britain aims to lift its GDP by expanding exports, a goal supported by recent trade deals, most notably the agreement reached with the United States. While these partnerships promise a boost in trade volumes, they may not resolve the core issue hampering growth.

Productivity Hurdles

Amiot observes that the UK’s stubbornly low productivity is partly a fallout of Brexit. “Brexit has curtailed the country’s labour supply and imposed a drag on investment due to the uncertainty that followed the referendum,” she says. She also notes that a sluggish financial services sector has amplified the problem: “After the Great Financial Crisis, productivity growth—especially within finance—has been notably weak.”

Labor Market Indicators

• Job vacancies have declined since April 2022.
• Unemployment has risen from August 2024, reaching 4.7% in May—its highest level in four years.
• Higher operating costs, driven in part by the government’s rise in national insurance contributions, are contributing to the drop in vacancies.

Implications for Inflation and Monetary Policy

Limited productivity keeps wage growth low, which in turn is expected to dampen inflation. “Stronger wage growth has stalled, while unemployment has climbed again. For the Bank of England, this signals widening labor‑market slack—a development that should ease inflationary pressures and enable an earlier rate cut,” states Sarah Coles, head of personal finance at Hargreaves Lansdown.

Related Discussions

Experts are also evaluating the ongoing impact of Brexit and debating the potential of a UK‑EU reconciliation on the financial services sector.

What Brexit really cost the UK

Court Reflection: Economic Outcomes of Brexit after Nine Years

Economic Forecast by the Office for Budget Responsibility

In a recent assessment, the Office for Budget Responsibility (OBR) examined the financial repercussions of Brexit over the past decade. Their findings indicate that, since 2020, the country’s withdrawal from the EU has eroded overall economic performance.

Key Findings

• Productivity decline: GDP contracted by 4 % relative to a scenario where the UK had remained in the bloc.
• Trade reduction: Import and export volumes—both goods and services—fell by roughly 15 %.
• Investment impact: Fiscal flows toward new projects experienced a noticeable downturn.

Financial Cost to the State

John Springford, an associate fellow at the London‑based Centre for European Reform, has translated these broad metrics into tangible fiscal terms.

Fiscal Burden

• Since 2019, Brexit has exacted a direct cost of about £40 billion (€46.1 bn) on government finances.
• The 2019‑2024 parliament increased taxes approximately £100 billion. When the OBR’s 4 % productivity loss is applied, it appears that £40 billion of this tax rise can be attributed directly to EU withdrawal.

Is the worst over?

Long‑Term Economic Fallout from Brexit

“Brexit is going to have a long‑term impact on UK growth beyond the initial fallout seen in trade,” remarked Dr. Amiot, adding that the UK’s capacity for growth remains durably lower due to a smaller workforce and weaker competition. 
He also noted that most of the immediate shock has likely absorbed, yet the underlying structural changes persist.

Investment Recovering but Still Lower

• Investment stagnated for five years before re‑accelerating.
• Gross fixed capital formation (GFCF) and business investment hit record highs in Q1 2025.
• Current levels have surpassed pre‑Brexit referendum figures.

Trade Challenges Persist

Trade with the EU has struggled, influenced further by the COVID‑19 pandemic and a global slowdown in goods trade. 
Andrew Hunter, Associate Director at Moody’s Analytics, told Euronews Business that while firms have adapted, export volumes and GDP still feel the lasting impact of Brexit.

• Goods exports to the EU are 16 % below real‑terms levels of late 2019.
• Exports to non‑EU partners have deteriorated even more.
• The UK lags behind other advanced economies, with many firms halting exports due to added costs and paperwork.

Potential Relief from New Trade Deals

The recently signed US‑UK trade agreement has promised to attract investment and offer free trade for the aerospace sector, even as the EU considers countermeasures.

• US tariffs are projected to drag UK GDP by around 0.1 % in this year and next.
• Other free‑trade agreements provide only modest offsets—roughly 0.2 % of the 4 % loss from Brexit.
• Even a full US FTA might increase the macroeconomic benefit to approximately 0.35 %.

Expert Outlook

While the UK government’s “reset” deal eases some trade barriers, particularly for food and agriculture, experts anticipate a slow and uncertain path toward a robust export rebound.

A clouded UK economic outlook

Short‑Term Economic Challenges

With economic activity remaining sluggish, expectations have risen that the government will need to offset the shortfall in tax revenue by raising rates later this year, further tightening GDP growth.

Long‑Term Outlook

• Analysts consistently predict a slower growth trajectory for the UK compared to a scenario where it had stayed within the EU.
• This slowdown stems from structural gaps created by losing EU market access, including shortages in workforce, investment, and trade channels.

Key Uncertainties

According to the Chief UK Economist at S&P Global Ratings, the major source of risk lies in productivity:

• Expectation: Most forecasts foresee a productivity rebound that could underpin stronger growth.
• Challenge: The actual path depends on how swiftly government policies are executed and how quickly AI technologies spread across the economy.