The economy is now showing signs of slowing down, with GDP growing only 0.2% in the first quarter. However, the IMF has on several occasions in the past 18 months changed its economic growth forecast, with numbers ranging from 2.2% pre-referendum, to 1.3% initially after the vote and back up to 2.0% in April of this year, and back to 1.7% this month. These zig-zag moves illustrate the difficulty in getting a grip on the Brexit effect, but the IMF still believes that “the uncertainty over Brexit is a negative” and “there could be some [negative] supply side effect on the British economy that could play out over time”.
One such effect has been a recent decline in net migration towards the UK. The UK faces a demographic shortfall and unless the shortage of people of working age is made up by immigration, GDP will eventually fall, while poor growth in UK productivity has added to the problem. One of the key issues in the Brexit debate was the significant rise in immigration, caused partly by the accession to the EU of nations such as Poland in 2004. Now, many EU nationals are going back home against the backdrop of a strengthening EU economy. This has already led to labour shortages in some sectors in the UK, such as the agriculture and hospitality industries, which rely heavily on immigrant labour.
For now, the UK has been left waiting for a trade deal to take shape, to see to what extent that arrangement replicates single market access. As far as the EU is concerned, life outside the bloc must be seen to be visibly less agreeable than being within in it. It simply isn’t in the EU’s interests to offer any kind of deal that makes it look that leaving the bloc comes without a cost.
As with any divorce, the spurned partner isn’t going to make concessions, and is more likely to play hard ball. Brexit has undoubtedly been the biggest political and economic decision in modern British history, and love it or loathe it, its legacy looks set to last for generations.