It will go down in history as one of its ironies that the United Kingdom left the single market of the European Union and almost instantly became a semi-parody of the supposedly troubled economy of the Old Continent. Its growth is slower, and London’s politics are contradictory and ineffective. From 2013 to 2019, the UK was the top performing economy, tied with the United States, despite significant fiscal savings and restructuring of banks, businesses and household balance sheets. However, after the Brexit referendum in June 2016, and even more so after the UK left the EU single market. January 2020 is far behind. While Eurozone GDP is 2.4% higher than in the fourth quarter of 2019 and US GDP is up 5.1%, UK GDP remained about 0.5% lower. Fortunately, the worst may soon be over.

In the UK, despite tight monetary and fiscal policies since late 2021, demand has recovered to pre-virus levels. However, the gap between demand and real GDP reflects a severe supply shock ahead of the EU exit. And this has led to an increase in the cost of transactions with EU countries. and in slowing down investments related to stimulating productivity in business. However, the fundamentals of the economy remain healthy. While Brexit is bad policy, it is only one of many factors that determine the UK’s long-term economic performance. Banks are well capitalized. Household and business balance sheets are healthy. Institutions are strong and the regulatory environment is competitive. Potential growth in the UK fell from about 2% to 1.5% after the exit referendum. in 2016. But about half of those losses are due to the uncertainty of noisy politics. This includes, but is not limited to, continued delays during Brexit trade negotiations, continued risks of a trade war between the UK and the EU; over the Irish border, government disputes and former Prime Minister Lees Truss’s budgetary reshuffle last September, while an end to unnecessary uncertainty is likely to boost growth.

* Economist at investment bank Berenberg Bank