During the run-up to the Brexit referendum, the battle cry of the Remain campaign was that in case of Brexit, the British economy will experience a significant economic downfall. Their view was based on the relationship between trade, investment and free movement of people.
Their hypothesis was that Brexit will likely lead to higher barriers to trade between the UK and other countries, which in turn will hugely hamper UK economic growth. They also argued that Brexit will lead to an outflow of human resources, at both end of the skill spectrum, in turn reducing the potential of the UK economy.
There was consensus in most of the studies that the UK economy will grow more slowly after Brexit, than it would do as a member of the EU. The predictions ranging from a negligible cost to a massive 18% reduction in output over a ten-year period.
According to many, the negative impact resulting from Brexit will leave very few sectors unharmed. The financial services located in the City were predicted to face most of the negative consequences followed by the manufacturing industry, this time located in the northern parts of England. The expectations were that jobs will be lost across all sectors with the exports of goods falling sharply and the financial sector suffering an exodus of services. Investment was also expected to remain subdue for many years.
However, the overly negative predictions have so far, not materialised.
The reason or reasons are subject to debate. It is fair to say that any prediction of the future is subject to high uncertainty, and the eventual outcome will be shaped by all sorts of hard-to-predict macro-economic events. Events were not made easier by the pandemic, which created havoc in the entire world, slashing output across most economic sectors. But the conviction and forcefulness by which the forecasts were being made prior to the referendum and the relatively silence in comparing them with the actual outcome merit attention.
To isolate the effect that the COVID-19 had on world economies over the last one year, it is useful to look at the outlook for the next 5 years. If the prediction made prior to Brexit were to hold, one expects the UK economy to shrink, or a much lower growth than that of comparative economies.
However, a glance at the main macroeconomic indicators points towards a very different picture to that predicted by experts before the referendum. One such indicator is the rate of growth of GDP over the coming years. Data from the IMF World Economic Outlook April 2021 in fact predicts that the UK economy will outpace that of its main rivals, namely France, Italy, and Germany over the next 5 years.
Headline figures might not capture the full picture. It helps to look at other indicators such as investment and how the industry has been reacting over the last years and its outlook for the years to come.
In June 2021, it was reported that British factories enjoyed the strongest growth in output on record. The Confederation of British Industry said its quarterly survey of manufacturing that the rebound across the sector was gaining momentum.
At the start of July 2021, Nissan confirmed plans to open a £1bn flagship battery factory in Sunderland, North of England, as part of a major electric vehicle push that will create thousands of new jobs. The Japanese carmaker said the huge new plant, dubbed EV36Zero, would create 6,200 new jobs at Nissan and its UK suppliers.
Again, in July of this year, it was reported – mainly in respectful sources such as Dealroom and Adzuna – that the UK tech sector has now 100 UK tech companies valued at $1bn or more. So far in 2021, 13 UK tech unicorns have already been created, compared to 7 in the whole of 2020, and UK tech unicorn creation has increased by 127% since 2017, when the UK was home to 44 tech unicorns. UK tech start-ups have raised $14.5bn since the start of the year, beating the previous record of $8.9bn during the second half of last year, with two weeks still left to go.
The same sources mention that the UK’s 100 tech unicorns have raised almost $32bn in venture capital investment, across multiple tech sub-sectors, including e-commerce, cyber security, and energy. It seems that now the UK will be joining the US and China as the only nations to have triple digit tech unicorns globally, and is the first country in Europe to reach 100 tech unicorns, with more tech unicorns than Germany (42), France (22) and the Netherlands (18) combined. Hiring in the tech sector has also surged to its highest level in five years as venture capital investment booms despite the impact of the pandemic.
Indeed, since February, tech job vacancies have consistently topped 100 thousand, while open roles rose to over 130 thousand in one week in May.
A comparison between what was generally predicted prior to the Brexit referendum and the outcome that actually happened points towards overly negatively and biased forecasts. One does not exclude that the world has moved on since then, hence, changing the trajectory.
A more plausible explanation may be that the predictions were largely driven by the fact that experts tend to seek safety by not straying away from the herd. This herding is a well know phenomena. Alternatively, predictions were mirroring the biases of the ‘experts’ and their efforts to have the results they wished for by presenting scenarios that were not realistic.
Choosing which out of the above is the least worrying is as difficult as trying to understand why the predictions went off course in the first place.