Last Updated on Thursday, 31 October, 2024 at 9:13 am by Andre Camilleri
Dr Lina Klesper is an International Legal Assistant at PKF Malta
In the wake of Brexit, UK’s economy stands at a critical juncture. Three and a half years on, the impacts of the UK’s departure from the European Union are surfacing, raising concerns about long-term economic stability, public health, and social welfare. Though Brexit initially appeared as a chance for Britain to assert its independence, the country now finds itself economically isolated and grappling with challenges its EU neighbours are better equipped to handle.
This summer, Prime Minister Sir Keir Starmer, alongside Chancellor Olaf Scholz in Berlin, emphasized “resetting” UK-EU relations. From proposals for defence and cooperation pacts to discussions on addressing illegal migration, Starmer’s diplomatic strategy aims to rekindle alliances previously strained by Brexit. His approach underscores a significant shift from the Conservative government’s stance and suggests Labour’s focus on diplomacy to stabilize Britain’s fragile economy.
Cambridge Econometrics’ analysis projects the impacts of the UK’s departure from the Customs Union and Single Market compared to a scenario where the UK stayed. By 2035, they estimate the UK will see 3 million fewer jobs (500,000 in London alone), 32% lower investment, 15.8% lower imports and 4.6% lower exports. New trade barriers have lowered business confidence and reduced EU companies’ desire to engage with UK markets. This also affects investment. Cambridge Econometrics notes that by 2035, output, investment, employment, and productivity will lag behind where they might have been had the UK remained within the EU.
The UK has recorded a mixed recovery so far, heading towards a long-term decline. The national economy grew by 0.6% between April and June 2024, following a 0.7% rise in the first quarter. Services, particularly IT, legal services, and research, led this modest expansion. However, key sectors like manufacturing and construction saw declines, and economists warn that growth could slow in the second half of 2024. The OECD has upgraded the UK’s growth forecast for 2024 to 1.1%, surpassing Japan, Italy, and Germany, yet inflation remains the highest in the G7, at 2.7%. Rising prices hinder economic recovery, and despite outperforming its continental peers in the short term, the UK’s long-term outlook suggests a more difficult road ahead. Industrial action by junior doctors highlighted deeper issues of the National Health Service (NHS) that could further affect the economy. A recent BBC report detailed that between June 27 and July 2, nearly 62,000 appointments were cancelled due to strikes, demonstrating the extent of strain on the NHS.
Among Brexit’s lasting consequences is the increasing stress on the NHS, which has faced severe resource shortages and overworked medical staff since 2020. With the post-Brexit decline in EU healthcare professionals in the UK, labour gaps are affecting patient care and leading to overlong wait times. Industry estimates project the NHS could face a funding gap of up to £38 billion annually by the next parliament’s end, exacerbating budgetary constraints for essential public services and undermining what was once a premier healthcare system.
Labour’s approach seems to reflect an implicit acknowledgment of Brexit’s substantial cost, especially in terms of public service funding. While not calling for re-entry, Starmer has suggested a pragmatic relationship with Europe that could support NHS needs through better trade conditions, economic stability, and possibly a labour deal to fill healthcare roles. These alignments reflect Labour’s recognition of the need for a more flexible, collaborative approach to maintain the NHS and support UK industries grappling with labour shortages.
The question of the UK’s potential for recovery looms large. Although the economy has shown slight improvements, significant challenges remain. The OECD projects UK inflation to stay above 2% into 2025, the highest among G7 countries—a level that could continue to undercut consumer confidence and economic stability. Labour’s recent discussions with EU leaders, including Starmer’s talks with European Commission President Ursula von der Leyen, hold promise for gradual progress on collaborative initiatives to address these pressures.
Starmer’s diplomacy has also opened doors to potential joint action plans on migration, aiming to reduce economic and social strains caused by unmanaged inflows. These efforts reflect Labour’s approach to steering the UK back onto a more stable path by rebuilding ties with Europe.
Despite modest signs of recovery, the UK’s economic outlook remains uncertain. Labour faces the difficult task of guiding the country toward sustainable growth amid the unanticipated costs of Brexit—from reduced investor confidence to an overstretched NHS. The party’s diplomatic initiatives are a first step toward mending economic relationships and restoring stability.
For a country at a turning point, this is a chance to address the vulnerabilities exposed by Brexit. Future economic policy, whether through labour reforms, trade deals, or joint actions with European partners, must confront the challenges posed by isolation. While the economy is showing signs of resilience, achieving lasting stability will require both strategic action and international cooperation to tackle inflation, workforce shortages, and funding for essential services.
