A recent UK report reveals a stark contrast in investment between the country’s public sector and the European Investment Bank (EIB) post-Brexit. The public sector’s investment in the UK has plummeted by over 60%, marking a significant departure from the EIB’s longstanding support for crucial projects over more than four decades. Notable endeavours funded by the EIB before Brexit include the Channel Tunnel, Manchester’s urban transport system, offshore wind turbines, and the modernisation of the British electricity grid.
Given these shifts, examining the post-Brexit financial market volatility is imperative. This article addresses critical questions, mainly focusing on changes in UK investment mechanisms during the post-Brexit period.
Declining investment in the UK after Brexit
Financial market volatility post-Brexit has been high in the UK. According to the Guardian, the investigations show that the European Investment Bank had invested six billion four hundred million pounds in the UK between 2009 and 2016. Meanwhile, due to the UK Investment Mechanisms established by the UK government after Brexit, only two billion four hundred million pounds were invested in this country.
Reduced attention to infrastructure projects in the UK
This amount represents only a third of the investments previously made by the European Investment Bank. Consequently, post-Brexit, investments in the UK have witnessed a two-thirds reduction. Conversely, emerging public investment entities in the UK, such as the Scottish National Investment Bank and the British Business Bank, have exhibited a comparatively lower focus on infrastructure projects than the European Investment Bank. As a result, there has been a notable negative impact on financial market volatility post-Brexit.
Criticism of the parties on the effectiveness of UK Investment Mechanisms
A new report on the effectiveness of the UK Investment Mechanisms created by the UK government after the UK published Brexit in a Changing Europe think tank. After the publication of this report, the opposition parties of the UK government, including the Labour Party, criticised the performance of the conservative ruling party and the government’s failure to invest in the industrial sector. Opposition parties believe that financial market volatility post-Brexit has been detrimental to the British economy.
Dissatisfaction of businesses with the UK Investment Mechanisms
Seven years have passed since the UK’s EU departure referendum, and it took four years for Brexit to be implemented entirely. However, not all business owners are content with the intricate administrative processes it entails. Official data indicates that some entrepreneurs have shifted their capital to EU member states, including Germany. This migration is attributed to the prolonged delays in managing customs affairs and the burdensome bureaucracies imposed on them due to Britain’s exit from the EU.
A three-and-a-half-fold increase in the number of British investment projects in Germany
Economic statistics also confirm these propositions. German data shows that UK companies established more than 170 foreign direct investment projects in Germany, Europe’s largest economy, last year, seeking to open a foothold in the European common market. As it is known, this figure is far from the number of 50 registered requests of UK companies to invest in Germany in 2015, i.e. a year before the Brexit referendum.
Transferring activities of UK companies to the Netherlands
The Netherlands has also announced that since 2016, more than 300 UK companies have moved their activities to the Netherlands to avoid trade barriers resulting from Brexit. However, business investment within the UK in early 2023 is around 1% higher than during the Brexit referendum in June 2016, a figure some economists attribute to uncertainty about trade relations with the EU.
Decrease in British exports to the EU
According to the Organisation for Economic Cooperation and Development (OECD) data, business investment experienced a 25% increase in France, 21% in the United States, and 7% in Germany over the same period. Official estimates reveal that approximately 61% of goods exported from Manchester in 2019 were directed towards the EU. In contrast, only 42% of exports from London and cities in southeast England were destined for the EU.
Concern about the lack of economic strategy in the UK government
British economists and companies believe that the lack of a long-term fiscal strategy in the UK exacerbates the problem of trade barriers with the EU. UK companies are waiting to see if London can compete with the enormous subsidies the US and the EU have devoted to developing green energy and technology. The UK government has announced an ambitious target of net zero greenhouse gas emissions by 2050.
Rejecting the arrangement of relations with the EU in the style of Switzerland
On November 20, 2022, the UK denied reports that the government intends to establish a trade relationship with Europe in the style of Switzerland. A Swiss-style arrangement of relations with the EU could remove many of the economic obstacles created by Brexit.
Postponement of health and food safety inspections by the UK
For the fifth time in three years, the UK government has postponed health and safety checks on food imports from the EU. The reason for this postponement is that carrying out these investigations can lead to an increase in the price of food and disrupt the supply chain in this country. According to a UK government announcement, earlier deadlines will be extended to allow more time for health and safety checks on imported food.
28% of British food imports from the EU
Some UK industry groups have welcomed the recent delays in border checks as they say it could avoid increasing costs on food supply chains. CNN reported that the extension suggests that border checks on food imported from the EU could translate into reduced supply. Meanwhile, 28% of food consumed in the UK is imported from the EU. As a result, London is trying to avoid any action that could worsen the situation.
Postponement of physical inspections until the end of April next year
According to the revised schedule, the issuance of health certificates for animal and plant products that are evaluated as high-risk and medium-risk products will be postponed; previously, these certificates were supposed to be presented at the end of October 2023, but with the new announcement, they are delayed to January 2024. Also, physical inspections will be postponed until the end of April next year, and final controls on EU imports, as well as safety and security declarations, will be postponed to October 2024.
The impact of Brexit on the increase in inflation in the UK
Brexit has fueled much higher inflation while making imports more expensive by creating friction in the UK’s most crucial trade relations and hitting the pound’s value. A recent study by the London School of Economics shows that Brexit has been responsible for about a third of food price inflation in the UK since 2019, adding nearly 7 billion pounds, equivalent to 8.8 billion dollars, to the British grocery bill.
The high costs of Brexit on the fragile British economy
Research indicates that the UK has experienced detrimental financial market volatility after Brexit. Recent statistics reveal that the country is still grappling with the repercussions of its departure from the EU in January 2020, inflicting significant costs on British businesses and adversely impacting trade, investment, and overall economic growth. The UK currently bears the highest inflation rate among G7 nations, with a notable 6.8% increase compared to the previous year. The aftermath of COVID-19, coupled with elevated inflation and interest rate hikes, has left the British economy in a fragile state.