It has taken six years since the vote to leave the EU, but I have finally lost the last of my patience with how (most of) the press is covering the economic impact of Brexit. Here are three of many examples from the last few days alone.
First, on Thursday the ONS published new data showing that the UK’s current account deficit widened to a record 8.3 per cent of GDP in the first quarter of this year, including a record trade deficit of 5.4 per cent. The Financial Times chose to lead its coverage with the striking claim that these “official figures corroborate academic studies showing a sharp drop in exports since Brexit.”
This is sloppy. For a start, UK exports have now recovered following an initial fall at the end of the transition period. At most, the “academic studies” suggest that exports are still lower than they might otherwise have been. But it is nonsense to imply that Brexit explains the sharp deterioration in trade performance at the start of 2022.
The rest of the FT story only briefly touched on the real issues. In particular, the surge in global commodity prices has increased the cost of imports, which also explains why the EU’s trade balance in goods has collapsed. Other potentially important factors behind the surge in the current account deficit include changes in the way that the UK’s trade data are collected, and a jump in outflows of investment income as UK firms start paying dividends again.
My second example of dodgy reporting is the “chart of the day” published by the New Statesman on 23 June. This apparently showed that the UK’s GDP per capita has “fallen by 4 per cent since the Brexit referendum, compared to 15 per cent growth among the EU.”
Anyone familiar with the official sources here would know immediately that these figures are way off. The usual OECD data show that UK GDP per capita was about 4 per cent higher in the first quarter of 2022 than before the referendum in 2016.
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This is a smaller increase than the EU figure of around 8.5 per cent, or the 6.5 per cent in the euro area (which is a more meaningful comparison). Nonetheless, the extent of the UK’s underperformance since 2016 is far smaller than claimed by the New Statesman. It can also largely be explained by factors unrelated to Brexit.
This leads to my third example, which is how the press have written up the latest results of the “doppelganger” model constructed by John Springford at the Centre for European Reform.
These models use a computer algorithm to select a weighted combination of countries whose growth and other characteristics best matched that of the UK before the EU referendum. The actual performance of the UK economy since 2016 is then compared to this control group, and the difference is taken as a proxy for the impact of local factors – including Brexit.
This is a reasonable approach and Springford’s analysis is a serious piece of work. However, there are still some major problems with it. Graham Gudgin has already had a good go at explaining these in a piece for Policy Exchange and I will be writing more on it myself.
Suffice to say that these models exaggerate how much the UK economy has actually underperformed since the referendum, and the extent to which any underperformance that has taken place is due to Brexit rather than other factors.
In particular, the recent data need to be seen in the context of the UK’s relatively strong performance from 2013 to 2016, especially when compared to the euro area. It was therefore always likely that the UK economy would have grown more slowly in the last few years, given where it was in the economic cycle. (This also applies specifically to business investment, and to sterling, which was already looking overvalued in 2015.) What’s more, Covid has had a bigger impact on the UK economy than most of its peers, and fiscal policy has been tightened sooner.
Unfortunately, almost all the media coverage has ignored these nuances. For instance, a piece in the latest Sunday Times by David Smith (who is usually excellent) simply stated that “the economy has lost 5 per cent as a result of Brexit.”
This is clearly a major problem. Even if balanced reporting were not important in its own right, the relentless anti-Brexit bias is surely contributing to the weakness in consumer and business confidence. It is also no surprise that polls consistently show that voters think Brexit is going badly when most of the press is telling them that it is responsible for all our woes.
There is also a growing risk that this dire narrative provides more ammunition to those seeking to reverse the result of the Brexit referendum by the back door, or at least to prevent the UK from making the most of the potential benefits.
Of course, it would also be wrong to deny that Brexit has had any negative impacts on the UK economy whatsoever. Business uncertainty has indeed increased, trade with the EU is more difficult, some workers are harder to find, and inflation may be a little higher too.
Yet this does not mean that the doomsters are right, either. There is still plenty of room for disagreement about the size and the likely duration of all these effects – and the implications for policy. It is therefore increasingly important that other voices are heard too.
Julian Jessop is an independent economist. He tweets at @julianhjessop.