On January 31, 2021, the United Kingdom left the single market


The fact that the British left Europe was a real opportunity for the Israelis. A significant number of trade agreements have been signed since 2021. Israel has become a major partner of the British. Brexit has had very significant effects on the future of the country.

Britain’s Secretary of State for International Trade, Kemi Badenoch, said her country intends to strengthen its trade ties with Israel in a range of high-growth sectors, including financial services, digital, health and infrastructure.

ACCORDING TO XERFI. On January 31, 2021, the United Kingdom left the single market, five years after a referendum in which nearly 52% of British people voted in favor of Brexit. Today, according to the latest polls, between 55 and 60% of voters would cast a “Remain” ballot to stay in Europe. This change in opinion is a sign. Certainly, contrary to catastrophic predictions, the British economy has not collapsed but it is dragging on. Since 2016, the growth hierarchy has in fact shown the United Kingdom lagging behind the euro zone and the EU of 27, an opposite situation compared to the five years preceding the vote when it dominated the ranking.

The causes of economic decline under debate

The causes of this downgrading are still debated. It is a fact that the separation between the United Kingdom and the EU took place during a period of strong global turbulence (Covid, war in Ukraine, etc.) the consequences of which were damaging. But all European countries have faced these crises. They cannot therefore alone explain the poor performance of the British economy compared to its main neighbors.

Brexit initially sowed doubt in the minds of managers as evidenced by the “uncertainty” indicator based on the responses of a sample of 10,000 companies. In December 2018, in the midst of negotiations with the EU on the terms of divorce, nearly 60% of respondents placed leaving the EU among their three main sources of concern. The indicator subsequently fell with the ratification of an agreement between the two parties, however nearly one in 5 respondents still considered Brexit among their three biggest sources of concern at the end of 2023.

The impact on investment and trade

This anxiety-provoking climate has greatly contributed to the decline in business investment, which found itself in the 4th quarter of 2023 at more than 20% of the level it would have reached if it had continued its trajectory observed before the Brexit vote. The same calculation for France shows, on the contrary, investment by French companies at the end of 2023 12% above the projected level if the pre-Brexit dynamic had been maintained. Leaving the EU therefore led to a loss of investment in the United Kingdom, reducing the country’s productivity and long-term productive potential, further amplified by the reduction in foreign investment flows.

The reestablishment of non-tariff customs barriers is not neutral on trade flows with the EU either. Trade in goods has, more particularly, been disrupted by new border formalities, new regulatory controls and stockpiling behavior in anticipation of the effective exit from the customs union. The trend is certainly amplified at the end of the period by the poor European economy, but the movement is now clearly towards a decline in trade.

The gradual exit of British manufacturers from European supply chains is confirmed: imports of components from the EU are falling and as a result fewer products are sold both to the European Union and the rest of the world. This is another thorn in the country’s growth potential.

The labor market in difficulty

Nothing of the sort, however, on the service side. Less hindered in trade than goods, exports of services to the EU have increased significantly since 2019. Consulting, telecommunications, IT, the United Kingdom’s strong points, have not been impacted by Brexit. Above all, no cataclysm has come to shake the City which still reigns over European finance. This is certainly the main error in anticipation of the consequences of Brexit.

On the other hand, as expected, the labor market suffers from a supply problem. The UK is the only major European country where the workforce is stagnating at pre-pandemic levels. The brake on employment of Europeans after Brexit has not been offset by flows from the rest of the world, above all they are not the same profiles and the same skills. Labor market flexibility is affected and results in higher wages and more persistent inflation.

This article is originally published on israelvalley.com


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