Brexit, year I: the British economy comes face to face with reality

The Global Britain dreamed of by Boris Johnson, finally freed from the "chains" of the European Union to become a new international commercial player, ended 2021, the first year of Brexit with no strings attached, reluctantly begging that truckers community members came to work in the UK.

Among other things, to refuel petrol stations, where hundreds of British drivers had been forced to queue for hours.

The pandemic does not understand exceptions, and the United Kingdom was forced to respond to a historical threat with the same acceleration in public spending as the rest of the European countries. The rebound of the crisis, however, which could have been more advantageous due to the economic characteristics of the country, was hampered by the problems arising from an exit from the EU for which many companies, busy to survive the coronavirus, did not have time to prepare, no resources or legal guidance to do so.

The year 2021 has been one of transition in many ways. The pandemic slowed international trade during the first half and softened the effects of Brexit. And the British government introduced flexibility in many of the customs controls on products imported from the EU. As of January 1, 2022, although some sanitary and phytosanitary security controls for agricultural products have been extended again for a few months, customs declarations will have to be cleared in advance. 50.3% of entrepreneurs consulted by the UK Institute for International Trade and Exports (IOE & IT) show their lack of confidence that this transition will be smooth. “Last year was an adaptation for all those British companies that trade with the EU,and in the last 12 months they have been gaining confidence again in these exchanges, but because they have been able to start receiving training and education ”, says Marco Forgione, general director of IOE & IT.

There is a consensus among economists that Brexit has been too heavy a backpack, at the least convenient time. No one is yet capable of predicting with certainty what will be its impact - negative or positive - on the economic future of the country. The Office of Budget Responsibility (OBR) has estimated the negative impact on GDP that Brexit will have in the long term at 4%. "For comparison, we believe that the impact of the pandemic will add to economic growth a decline of another two percentage points," said Richard Hughes, director of the OBR, at the end of last October.

Nobody is able to define exactly that "long term", but there is no dispute that the exit from the EU has incorporated a series of disadvantages to the British response to the crisis.

Under normal conditions, the United Kingdom, with an informed citizenry accustomed to the rules of the economy - capable of understanding, no matter how much pain it causes to their pockets, that excess demand triggers the price of gas or electricity - and With a flexible and agile market, it was in a position to have been one of the best countries to respond to and emerge from the crisis.

Mediocre results

The revolution in its international trade structure brought about by Brexit and a new immigration policy infused with ideology and a lack of common sense have made the country obtain mediocre results and be in the ranks of the rest of the western economies. The Organization for Economic Cooperation and Development (OECD) forecasts a GDP growth of 4.7% for 2022, and 2.1% for the following year. The forecast for Spain, for example, is 5.5% and 3.8% respectively. However, this 2021, the United Kingdom will end up growing, according to that same organization, by 6.9%, compared to 6.8% in France, 5.6% in the United States or 5.2% in the euro zone . "Stuck, instead of triggered",was the diagnosis of the UK economy made in its autumn report by the National Institute for Economic and Social Research (NIESR). “The short-term supply problems facing the UK are going to persist, and will most likely be exacerbated by Brexit. Our exit from the European Union has caused a reduction in the labor market, has decreased the investment levels of companies and has caused a certain contraction in our commercial sector ”, says the director of NIESR, Jagjit S. Chadha.it has decreased the investment levels of the companies and has caused a certain contraction in our commercial sector ”, assures the director of NIESR, Jagjit S. Chadha.it has decreased the investment levels of the companies and has caused a certain contraction in our commercial sector ”, assures the director of NIESR, Jagjit S. Chadha.

During the long lockdown of 2020 and part of 2021, about 1.2 million immigrants left the UK, according to the Office for National Statistics. Many of them were EU citizens who decided to return to their land with their families, rather than squandering their savings in a closed country that offered no job opportunities for them. A large part of them gave up starting the procedures that regularized their situation, the so-called EU Settlement Scheme, a process that has been accepted by almost six million EU citizens residing in British territory.

For all those who did not, the return, once the pandemic was over, was forbidden. The UK Home Office, led by a woman with a reputation for toughness and a strong supporter of Brexit, Priti Patel, had passed, almost as soon as Johnson arrived in Downing Street, a new immigration law that ended freedom of movement of people from the EU and tightened the conditions of entry to the British labor market. Who would have imagined that the labor shortage with which the world began to emerge from the coronavirus crisis, in the face of a huge global demand heat and a "great resignation" that had caused many people to leave the toughest jobs , repetitive and lower paid, would multiply the problems in the UK,that he was facing such a constrained situation with both hands tied behind his back.

"As the economy began to reopen, starting in the summer, many companies began to report a very severe shortage of staff," explain economists Yael Selfin and Dennis Tatarkov in the UK Economic Outlook report published this December by KPMG. “It is not a phenomenon exclusive to this country, but Brexit has been able to exacerbate it. In the euro area, approximately 25% of companies point to workforce as a factor that is limiting their production. While there they can make use of the flexibility offered by the internal market, it is much less clear that EU citizens who left the United Kingdom because of covid-19 will return once the pandemic is over ”, they say. KPMG estimates 200,000 EU citizens who participated in this exodus. Of them, 15.000 were truckers.

When the Johnson administration grudgingly admitted, amid the gas station supply crisis, that it had a problem, and promised up to 5,000 work permits for EU truckers, hardly anyone responded to the offer. First of all, because it lasted two months, until Christmas. And secondly, inexplicably, because it was accompanied by the threat from Minister Patel herself that she would shortly monitor those who decided to take advantage of the offer, so that they would not extend their stay in the United Kingdom for another day.

Who says truckers says waiters, slaughterers, construction workers or personnel for the country's food plants. It is true that the United Kingdom had a problem of decades of low productivity, accustomed as it was to an inexhaustible flow of cheap and skilled labor, mainly from the south and east of the EU. When, suddenly, Brexit and the pandemic turned off the tap, the Johnson government opted for ideology and decided to seek direct confrontation with British businessmen. "We have embarked on a change of direction that we should have undertaken a long time ago," the prime minister told the Conservative Party members summoned for the annual training congress in early October in the city of Manchester."We are not going to go back to the old and broken model of low wages, low growth, low skills and low productivity, fed and assisted by uncontrolled immigration," said Johnson.

No waybill

Two months later, however, the same prime minister arrived at the annual meeting of the UK's main employers' association, the IWC, and delivered his now legendary and infamous impromptu speech about Peppa Pig, the children's television character.

Beyond the jokes, or the explanations of such awkwardness —Johnson was in the middle of a strong cold with traces of being the flu—, his intervention meant for many the revelation that the emperor was naked.

He did not have a clear vision of what he was aiming for for the country's economy in the medium and long term.

Johnson had arrived at Downing Street in December 2019 with a speech that made him almost a social democrat, away from the neo-liberal and non-interventionist postulates of the Conservative Party rebuilt in the 1980s by Margaret Thatcher. His promise of leveling up (raising the level, rebalancing) the country, based on huge investments in infrastructure, technology and green economy in the most depressed areas of the north of England and the Midlands (in the center of the country), has lowered drastically his ambition. In large part, due to the enormous public spending that the fight against the pandemic has entailed. Again, ideology mixed with economic strategy. Johnson wanted to finally win over all the voters of the Labor tradition behind the so-called “red wall”,who in 2019 were seduced by populism and the sympathy of the conservative politician, and who had voted three years earlier in favor of Brexit, in the EU exit referendum, to express their discomfort with the country's economic and political elites.

In mid-November, the Johnson administration was forced to admit that its ambitious promises to the north were going to be curtailed. The HS2 macro-project, a high-speed railway line that, after linking London and Birmingham, would run in a “Y” to the west (Manchester) and east (Leeds), had to amputate its eastern arm. There would be no train to Leeds, at the moment, nor the promised improvement in the connection between this city and Manchester. “This was, without a doubt, the first test of the promised

of the Government, and it has failed miserably, to the disappointment of the inhabitants of the north. You cannot believe a single one of the promises of this prime minister ”, the leader of the Labor opposition, Keir Starmer, immediately took advantage of the cut. It was, in a way, an unfair accusation against a government that was trying to extract resources from under the rocks to try to carry out its electoral promises, truncated by the economic blow of the pandemic. The UK's debt at the end of its financial year, in March 2021, was 2.6 trillion euros, 103.6% of its GDP. The country's deficit amounted to 380,000 million euros, 15.1% of the size of its economy.

Rishi Sunak, the finance minister - who has kept his political capital intact, and even elevated, during the crisis and many point to as Johnson's successor - has managed to convey the idea that the Conservative Party maintains its fiscal discipline. Its Budget Responsibility Letter, presented in this year's Budget, “requires that the net debt of the public sector, as a percentage of GDP, must be reduced steadily. And, under normal circumstances, the government will only be able to borrow to invest in future growth and prosperity. Current spending must be paid through taxes ”, Sunak assured.

The UK's response to the devastation caused by the pandemic was virtually the same as that of EU countries. Its Job Retention Scheme, very similar in its conception to the Spanish ERTE, meant allocating, until August 2021, close to 100,000 million euros to support the jobs that were frozen. The Johnson Government has acquired an extra debt of 580,000 million euros to face the onslaught of the coronavirus. And when the time has come to start the engines, it has faced the same unleashed inflation as in the rest of Europe, the result of a global increase in demand for goods and services much greater than the capacities of the supply chain, and a global energy hunger that has coincided with a series of supply disruptions,which has resulted in skyrocketing prices.

Monetary dilemma

In November, UK inflation hit its highest level in a decade - 5.1 percent - and threatened to tighten the noose on the cost of living for many Britons and destabilize the country's growth. The Bank of England (BdI) was the first monetary authority to indicate its willingness to raise rates, in a gesture of courage that it has now decided to stop. “We believe that, at some point, it will be necessary to raise interest rates to regain the objective of sustainable inflation. And we are prepared to do so, "said the Governor of the IDB, Andrew Bailey, after the Monetary Policy Committee of the British monetary authority decided on October 30, in a tight vote, to keep the price of money at 0.1 %. Finally, the BdI gave in to pressure and raised rates this Thursday to 0.25%.The pressure of inflation has been greater than the uncertainty caused around the world, and especially in the United Kingdom, by the omicron variant of the virus. No one has yet been able to determine its severity, or what will be its effect on the world economy. It may create new bottlenecks in the supply chain, or it may cool demand by again constraining private consumption.

There is no exceptionality for the UK, which faces the same challenges and challenges as the rest of the Western countries. But with added ballasts of their own making. The increasingly evident frictions of Brexit, in logistics and customs procedures, remind us that the United Kingdom has changed its trade structure overnight, one of the most complex and profound changes that a country can make. It has gone from being part of a market that encompassed 27 countries and 400 million people to facing an increasingly complex globalization alone. "If the pandemic has been the hammer, Brexit has been the anvil," said a leading Spanish economist who has closely followed recent developments in the country. That turn so deep,Accompanied by overly ideological and impractical immigration regulations, it has led the UK to compete at a disadvantage with the rest of the world.