IN BRIEF
More than three years ago, in June 2016, the British public voted in favour of the UK’s withdrawal from the EU. Since then, European and British political leaders have been struggling to find a way to respect the popular vote, whilst preserving the economies and societies of the two partners. Their difficulties can be explained by the high level of integration between the two economies, after several decades of development in the European domestic market.
Accuracy analysed the economics that unite the two partners, corresponding to the four freedoms guaranteed by the European single market: the free movement of goods, services, capital and people. The Accuracy Brexit Index combines these four elements in one aggregated index, the development of which makes it possible to monitor over time the process of (dis)integration of the two economies.
On this basis, five macro-trends stand out:
– Whilst Brexit is still only a future destination towards which the UK is heading, relations with the EU – as measured by the Accuracy Brexit Index – have already deteriorated by 12%.
– This effective drop in the level of integration between the two economies can be explained by the uncertainty generated by the 2016 vote. It primarily affects investment flows (13% decrease of the investments index) and migration flows (25% decrease of the migrations index).
– Analysing the development of the exchanges between the two economies reveals two different dynamics. On one hand, the flows of capital and people are largely determined by economic agents’ expectations and the level of predictability of economic policy. The psychological impact of the 2016 referendum in addition to the context of uncertainty immediately translated into a decrease in exchanges. On the other hand, the flows of goods and services only show a small decline since June 2016, driven by the fact that these flows depend on shorter-term cost trade-offs. The lack of change in trading conditions before Brexit takes place has made it possible to maintain a certain level of commercial relations.
– Despite experiencing a drop in EU migration, we can already see migration flows into the UK rebalancing, with Asian populations replacing those flows which before came from the EU. This trend is expected to continue in the long term and can be explained by the considerable need for labour in certain sectors of the British economy. European immigrants have been replaced by Asian immigrants to such an extent that the total number of immigrants entering the UK has remained relatively stable.
– It is probable in the long term, after the implementation of Brexit, that the short-term trends observed in the wake of the 2016 referendum will reverse: trade in goods and services is expected to decline structurally, whilst the uncertainty surrounding the terms of the UK’s withdrawal will diminish and could ease constraints on investment. However, the level of investment is unlikely to reach its pre-Brexit levels, and migration flows from the EU will depend on new entry conditions. They, too, will be unlikely to reach their historical levels.