A little over a year ago, the governor of the Bank of England (BoE), Andrew Bailey, took the unusual step of warning that in his view, Brexit has undermined the British economy. He urged ministers to “rebuild relations with the European Union”.
Traditionally, BoE governors do not comment on politically contentious issues. Bailey sought to get round this by claiming that he had no view on Brexit itself, he was just pointing out the consequences. This is how most people would put it, if they did not want their view to be known. In October, he said: “If you ask me what the impact of Brexit is on economic growth, the answer is that for the foreseeable future it is negative”.
He went on to say that over time business could adapt to the new trading conditions. But growth would still be lower than it would have been without Brexit. All this is very pleasant for the Chancellor Rachel Reeves to hear. She had already been blaming Brexit for Britain’s poor economic performance since the election in July 2024.
While Bailey had spoken about Brexit previously, Reeves had suddenly found that the main problem with the economy has not been her policies but Brexit.
She had not made a mention of it when she spoke about the “£22 billion black hole in the public finances” around the time of the general election. As far as she was concerned it was the fault of the previous Conservative government. There is now an even larger black hole but again there is no blame on the government for it but on Brexit, as far as the Chancellor is concerned.
There is no doubt that to date much of the potential of Brexit has been wasted. Image for illustration only. — Reuters
One would find it hard to understand this view with the evidence published last month by Make UK, the manufacturing industry body. Spending on investment in plant and machinery had been rising and was at a 10 year high in 2024. But it has since dropped to its lowest level since 2017.
It becomes more difficult to support Reeves’ argument when one looks at economic growth in the major European Union economies and compare it to that of the UK. Economist at Volterra Partners LLP, Paul Ormerod, rightly points out that since the Brexit vote, all the major economies in the EU have grown slowly.
The referendum was held at the end of the second quarter of 2016. Between then and the second quarter of 2025, the French economy, grew by a total of 11.5 per cent.
In Italy, growth was 9.5 per cent and in Germany just 5.6 per cent. The UK over the same period has grown by 10.6 per cent. These are all the low growth rates by historical standards.
Even if one was to calculate the rates from the end of 2019, when Boris Johnson had been elected to “get Brexit done” the growth rates are similar through to 2025. Italy, which registered zero growth 2016-19, expanded by 9.6 per cent, France by 5.1 per cent, the UK by 4.2 per cent and Germany by a mere 0.1 per cent.
In short, the big four economies in Western Europe have all grown at a very similar (and slow) rate over the past ten years. It therefore seems very unlikely that Brexit is the principal cause of growth stalling under Labour since the election.
There is no doubt that to date much of the potential of Brexit has been wasted. Britain has remained enmeshed in attitudes and regulation which discourage innovation and entrepreneurship. As Ormerod says, a step in the right direction would be to start removing the barriers to growth instead of creating new ones. Reeves instead looks for scapegoats and to pin the blame on Brexit.