Here, City-REDI’s Prof. John Bryson discusses what Theresa May’s speech on ‘Exiting the European Union’ earlier this week means for everyday Britons.
“Well, that’s all folks!” This well-known phase from the world of Hollywood cartoons perhaps sums up Theresa May’s Lancaster House speech that has laid out some of the principles that underpin the UK Government’s approach to leaving the EU. There has been so much speculation, perhaps too much, regarding the UK Brexit negotiations. What has been apparent for some considerable time is that the primary decision within the Brexit negotiations is simple – leaving the single market and removing the UK from the four freedoms that are central to the EU project – the freedom of movement of goods, people, services and capital over borders. These freedoms underpin the single market. May’s Lancaster speech is a clear statement regarding the withdrawal of the UK from the single market, but with a strong desire to renegotiate access to the EU market in some form.
It is always worth remembering that the EU single market is, in part, an illusion; the project to create a single EU market is only partially complete. In addition, UK trade has for some time been shifting away from a focus on the EU towards other markets. In 2015, the EU accounted for 44% of UK goods and service exports (£222bn) and 53% of imports (£291bn). The share of UK exports to the EU has declined since 2002 as other markets have become more important. The U.S. is the most important export market accounting for 16% of UK exports (£84bn in 2014) with Germany being the second largest (8.7%, 44.9bn in 2014). The five most important EU trading partners account for two thirds of UK exports to the EU (Germany, France, Netherlands, Ireland and Spain). The UK has a trade surplus with 5 EU Member States and a deficit with 21 with the largest deficit being with Germany (£25bn) and the largest surplus with Ireland (£8bn).
The decision to put the final Brexit deal to a vote in both Houses of Parliament has reassured the financial markets and led to the dramatic rise in sterling against the dollar earlier in the week – perhaps not that dramatic given the decline in the value of the pound since June 2016. For many, it is no surprise that the UK will leave the single market. The key question is what are the practical implications of leaving the Single Market for everyday Britons? It is important to state outright that the performance of the UK economy after the EU referendum has taken many economic forecasters by surprise. Most forecasters predicted some form of economic collapse. This has failed to emerge, but some forecasters argue that it will still happen, but not right now.
The important point to make that with some exceptions everyday Britons have just got on with living their lives. Brexit is a very minor issue for the majority of Britons as they work, live, shop, relax and plan for their futures. The same is true for the majority of firms based in the UK – production, sales, design, development, innovation activity and recruitment continues. The initial Brexit impacts have been set aside and replaced by everyday living or the distractions of the immediate. One could argue that for some people, problems with the NHS or with the railways or London underground have had more impacts on their immediate everyday lives than Brexit. We need to distinguish, however, between short-, medium- and longer-term impacts of Brexit. There have been no major negative short-term impacts. The decline in sterling has not yet fed into consumer prices and the extra cost of holidaying overseas has been relatively trivial. It is also perhaps too easy to forget the impact the decline in the pound has had on the stock market. The recent bullish FTSE market is a direct response to the decline in the pound and has increased the value of funds already invested in equities by pension funds. The medium-term impacts are perhaps most related to an increase in inflation as the value of the pound impacts on the cost of imported goods and services. The question is by how much will imported goods increase in cost? The long-term consequences might mean that it is harder to travel to EU member states as perhaps some form of visa might be required. But eventually some form of visa waver system will be introduced.
Overall, it is important to place Brexit in the wider context of everyday living in the UK. For most people, Brexit is relatively unimportant compared to the problems they face in their everyday lives. The Lancaster House speech is thus correct to focus on placing Brexit in the context of a concern with ensuring better outcome for people – people living in the UK, but also those living in other countries.
For the original piece, published in the Huffington Post, please see here.