WELLINGTON, NEW ZEALAND: As things stand right now, the United Kingdom will not be leaving the European Union until October 31. And that five-month delay will cost Britain’s economy more than £800 million (Dh3.8 billion) every week, according to a report prepared by the Bank of England and delivered to the government of Prime minister Theresa May in March.
Originally, the UK was supposed to leave the EU on March 29, but being unable to get approval on the withdrawal agreement negotiated between May’s government and Brussels, that deadline to leave had been pushed back to April 12, then the end of June, and now likely for October 31.
But no one knows for sure — and that uncertainty is adding to the cost of the UK reaching a divorce agreement after 46 years’ political and economic marriage to the EU.
As part of the initial deal to leave, Britain agreed to pay the EU €50 billion (Dh238 billion) over the next two decades for its pension and other obligations to the European budget.
Since Britons voted by 52 to 48 per cent in June, 2016 to leave the club of 28 nations that share open borders and enjoyed the free movement of goods, services and people, the pound has lost about one-fifth of its value. Before the referendum, £1 was worth €1.40. Now, that same £1 means Brits can only get €1.12 — making holidays in Greece, Spain or the south of Europe more expensive than before.
The fall in the value of the pound has also meant that imported goods now cost more, spurring inflation and contributing to a fall in the real buying power of Britons’ pay cheques.
According to the Bank of England, the UK economy is now 2 per cent smaller today than if Britons had voted to Remain instead of Leave. The Bank’s economists have calculated that the delay is costing the UK £800 million per week — or £4.7 million ever hour.
According to the study, this could have funded 1,290 hospitals, provided 14 billion meals for children, or hired two million police officers.
Those costs have piled up even though the UK remains part of the EU for now.
In London alone — known for its banking, trading, and clearing operations that brought high-paying jobs to the City of London — more than 7,000 jobs in the financial centre have been lost. Banks with international operations are moving those jobs to elsewhere in the EU — places like Germany’s financial hub in Frankfurt, the financial district in Amsterdam, or across the Irish Sea to Dublin’s International Financial Centre developed in Dublin’s docklands. There, companies benefit from the lowest corporate tax regime in Europe, where rates are just 12.5 per cent.
French President Emmanuel Macron has made no secret that he wants to steal 10,000 banking and financial jobs from London to Paris, and he has taken the toughest line against the May government over its plans to prolong its Brexit departure date.
For those banks and financial services companies who want to maintain operations in both the UK and the UK, regulators want assets spread across operating bases in and out of the EU after Brexit. Those regulations mean that at least £1 trillion will move from the City of London institutions to others in the EU27 — mostly to Paris, Amsterdam, Frankfurt and Dublin, the consultancy group EY reports.
For small companies, restaurants and hotels that employ European workers, the uncertainty over workers’ rights and living in a post-Brexit EU has meant that low-paying jobs are becoming increasingly harder to fill, with more than 100,000 EU workers deciding to move from the UK in the past year alone.
For large companies, the uncertainty is forcing difficult choices. Japanese giants Sony and Panasonic have moved their European headquarters out of Britain, and Japanese carmaker Honda is shutting its Swindon plant west of London, with the loss of 3,500 jobs in the factory, and thousands of other jobs in ancillary factories and services. German engineering company Schliffler is shutting two of its three factories in the UK because of Brexit. And plane manufacturer Aerospace is warning that as many as 14,000 jobs in the UK are at risk too.
When UK voters cast their ballots in June 2016 in the EU referendum, the UK had the fastest-growing economy in Europe. The growth rate of more than 2 per cent per annum has now slipped to just below the 1 per cent mark, investment by UK companies stalled, and then plunged 3.7 per cent in 2018. For the other members of the G7, business investment is up 6 per cent annually since that vote.
“The reason for this underperformance relative to the rest of the world is, I believe, the uncertainty surrounding the prospect of Brexit,” Gertjan Vlieghe, a member of the Bank of England’s Monetary Policy Committee, said in a speech last month.
Adam Marshall, the director general of the British Chambers of Commerce, says Brexit uncertainty is taking its toll on businesses.
“It is clear that political inaction has already had economic consequences, with many firms hitting the brakes on investment and recruitment decisions as a result of ongoing uncertainty,”