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UK’s north-south divide will worsen outside the EU

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Forecasts of Brexit’s economic impact depend on so many parameters that they are complicated to make. This is all the more so since the outbreak of the Covid-19 pandemic. Economists nevertheless agree on one thing: whether an agreement is reached in-extremis or not, the UK will be a loser. “There is still uncertainty about the magnitude of the impact associated with the different Brexit scenarios, but the trend in both the short and long term is clear,” says the Social Market Foundation, a think-tank, in a report published in May.

“If a free-trade agreement is found, there will be a moderate negative impact on GDP (-1.8% in 2024 compared to remaining in the EU). And if the UK exits without an agreement, the negative shock will be more severe (-2.9%).” Even if a free-trade agreement is eventually signed between London and Brussels, it will not be able to compensate for all the friction inherent in leaving the EU (re-establishment of phytosanitary controls at the borders etc.). 

That observation aside, if we look in more detail we can see which British regions have the most to lose from Brexit. Again according to the Social Market Foundation, and on the basis of government data published in 2018, the London region would be the most spared by the country’s exit from the EU – whether it be brutal with a no-deal scenario or softer with a new free-trade agreement. The added value produced by the capital region would thus only fall in the long term by between 4 and 6%.

Conversely, the Northeast region, centred around Newcastle, would be the most affected by Brexit, with a loss of more than 10% in the case of a divorce without agreement. This is followed by the Northwest (where the two hubs of Manchester and Liverpool are located), the Midlands region (which forms an east-west belt in the centre of the country) and Northern Ireland. The reason? “The Northeast specialises in exports of goods, while London specialises in exports of services,” says the report.

In 2019, London exported more than GBP 120 billion in services (especially financial services, which it is trying to protect), compared to only GBP 40 billion in goods. For the Northeast, the picture is the opposite: in 2019 just under 15B in goods and only half of that (7B) in services were exported from there. Clearly, it is the industrial regions – which have already suffered most in recent decades, particularly as a result of globalisation – which risk being dealt a new blow by Brexit. 

Britain’s northern regions also risk being hurt by their dependence on European exports or imports. “More than 60% of imports to, and exports from, Northern Ireland come from, or are destined for, the EU,” say researchers at the Social Market Foundation. In the case of London, these percentages are lower but still significant (around 50%), underlining the integration of the British and European economies.

All this will further deepen the already gaping regional disparities in the UK. “In Europe, only Romania and Poland have such wide gaps between their most and least productive regions,” says the Industrial Strategy Council, which is responsible for assessing the country’s industrial policy.  

Original article on Alternatives Economiques.  


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