Six years on since the Brexit referendum – why Brexit is playing a significant role in the country’s economic downturn

“The happenstance between the UK’s departure from the EU and the Covid-19 pandemic makes it difficult to disentangle the effects of these two events on the UK economy. However, emerging evidence strongly suggests that the referendum is likely to have played a significant role in the country’s economic downturn via higher prices of imported goods, lower wages in some parts of the country, and higher uncertainty, which reduced foreign investments.

“However, and perhaps surprisingly, for years after the referendum, the impact of Brexit on trade has been limited, at least until the TCA between the UK and the EU came into force last year. Although it’s premature to draw conclusions on the long-run effects of Brexit on trade, the TCA was no substitute for free trade and likely gave rise to red tape that led to UK businesses rethinking the configuration of their supply chains, via a mix of nearshoring and supply chain diversification. And, while nearshoring seems to gain popularity, businesses should be aware that relying entirely on one market can actually increase risks, not curb them. By comparison, supplier diversification is a way to increase resilience by diluting risk along multiple dimensions, not least by making supply re-calibration easier to implement when shocks hit specific markets.”

Tommaso Aquilante, Economist and Associate Director of Economic Research at Dun & Bradstreet