Brexit 3rd Year Review (7.4.2024)
Preamble
This is the eleventh post in a series of posts listed in Appendix 1, where I endeavour to report UK economic performance and events since the UK left the EU. This post reviews the whole of 2023's post Brexit economic performance, but concentrates mainly on events and change in the second half of the year, earlier events having been covered in the 2023 Q1 and Q2 reviews.
On another thread the subject of justifying comments has been debated. I endeavour to support almost all I have written below by references, but not absolutely everything as the reference list would be extremely long. If I have failed to provide a reference for a comment, I am confident the reader will find a reference supporting my words by googling a quote of my comment.
I hope this journey through the UK' s third year of Brexit will bring some cheer and pleasure, as apart from the unpleasant developments, there is much to celebrate and be glad about, or bring optimism.
Summary of UK Post Brexit Economic Performance and Events in 2023.
The UK went into a technical recession during the second half of 2023 driven by reduced personal spending, due to increased interest rates, and reduced government spending in the last quarter. Nevertheless Gross Domestic Product (GDP) increased slightly to £2.274 trillion.
2023 UK Corporate profits and Gross National Income were at a record levels. See section A1.
Sections A2 and A3 expound the benefits of ending freedom of movement for UK workers who continue to enjoy higher average wage increases, lower redundancies, and lower unemployment than the periods prior to leaving the EU, and prior to the Brexit referendum.
Throughout 2023 the UK inflation rate continued to fall for five quarters in succession to its lowest level since October 2021. See section A4
Total UK trade continued to be at a record level exceeding 2022's record trade figures. The UK government exercised its sovereignty by facilitating future trade growth through new trading arrangements with the US national government as well some individual US states, Australia, New Zealand, Japan, Switzerland, Kenya, Israel, Philippines, Taiwan, Ukraine, Ghana, and indeed the Windsor Framework with the European Union, as well as accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which will facilitate future improved trading arrangements with its members that represent over one seventh of world GDP. See section A5.
UK gross fixed capital investment (GFCF) continues to be at an all time record level in terms of capital, and the highest rate seen this century in terms of relative to the size of the economy (i.e. %GDP).
The UK is the top destination for financial services FDI in Europe. See section A6
Section B reviews how the UK continues to play a major role in world affairs and form stronger bonds with many nations fostering future peace and prosperity. If confirmation of the UK's world influence is needed, in April 2023 the Association of Accredited Public Policy Advocates to the European Union published a study of soft power (a nation’s presence, reputation and impact on the world stage) and placed the UK second only to the United States. Brand Finance's 2024 Global Soft Power Index also places the UK as the second most influential country in the world.
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A UK Economic Performance.
A1 GDP Growth 2023 (Ref. 1)
G7: US 2.5%, Japan 1.9%, Canada 1.5%, France 0.9%, Italy 0.7%, UK 0.1%, Germany -0.3%,
Other countries: Euro area 0.5%, EU 0.5%
Other countries (Ref. 2): Spain 2%, Netherlands -0.5%, Ireland -8.7%
UK growth was adversely impacted by the affects of high interest rates, strikes, and the economic contraction of three of the UK's four main export customers: Germany, the Netherlands, and Ireland.
According to the OECD (Ref. 1), initial annual estimates indicate that OECD GDP growth slowed to 1.6% in 2023 compared with 2.9% in 2022. Among the 27 OECD countries for which data is available, 10 recorded a GDP contraction in 2023. In 14 countries, including the UK, growth slowed but remained positive. Only 3 OECD countries recorded higher growth in 2023 than in 2022: Costa Rica, the United States, and Japan, but even Japan's economy contracted sharply in quarter 3 of 2023. (Ref. 3)
Despite the contraction of the UK economy in the second half of 2023, monthly GDP is still estimated to be 1% higher than before leaving the EU (Quarter 4 2019). (Ref. 4) The recession in H2 and the UK's post Brexit economic performance is examined further in appendix 2.
The UK economy (GDP) growth has stalled in 2023 due to increased interest rates to counter inflation, continued post pandemic economic inactivity and shortages, and strikes. Despite this GDP actually increased by 0.1% in 2023, unlike similar years during EU membership such as 1980-81 and 1990-91 when high interest rates were used to tighten money supply. On those occasions the economy contracted sharply. (Ref. 5)
The recent rise in interest rates by the Bank Of England (BoE) was less effective in reducing inflation I believe due the strong undercurrent in the post Brexit economic growth generated by post Brexit higher investment, higher wages, low unemployment, and release of savings accumulated during the pandemic lockdown. Despite the Q4 contraction, the UK economist at Pantheon Macroeconomics notes that the decline in economic activity doesn't signal a recession due to positive employment and real wage trends.
UK Gross National Income increased by 5% to £2.65 billion (bn) in 2023 from £2.52 bn in 2022. (Ref. 6) The graph in reference 6 indicates that the recent rate of increase in GNI (current price, seasonally adjusted) is as fast as at any time in UK history, and clearly on course with the pre-pandemic and pre-Brexit trend.
According to the special Atlas method of conversion used by the World Bank, the UK's GNI for 2022 was $3.3 trillion, an 8% increase from 2021's value of $3.05 trillion. These values are the highest ever, exceeding the previous highest of $2.99 trillion in 2008. The first two years of Brexit were the highest GNI in UK history by this measure. (Ref. 7)
Regrettably whilst the country as a whole gets richer, inequality gets worse. I have repeatedly maintained that it is no coincidence that the gradual increasing share of income by the bottom 50% of the UK population during the 20th century came to an end when the UK entered the Common Market in the 1970s. (Ref. 8) The EEC/EU is dominated by capitalist interests. Britain in the 1970s was one of the most equal of rich countries. Today, it is the second most unequal, after the US. The UK is not alone; there is growing inequality in France and in Europe's richest country Germany for over a decade. (Ref. 9)
UK Corporate Profits were an all time record £590 bn in 2023. (Ref. 10) This was achieved despite a sharp reduction in profits in H2.
High interest rates to combat inflation forced many economies into a technical recession during 2023. I have dealt with the UK's second half recession in Appendix 2. But this slowdown has not affected all sectors of the UK economy. Construction and manufacturing were adversely impacted by high interest rates but parts of the service sector have performed well. British Airways have reported operating profits of £3bn in 2023, close to three times that of 2022 and higher than its pre-pandemic peak. (Ref. 11)
The recorded music industry has recovered strongly from the pandemic. After a long slump, UK digital entertainment and retail association reported that recorded music revenues have risen to £2.223 bn. (Ref. 12) The UK's big five banks made record combined pre-tax profits, ahead of the pre-financial crisis peak in 2007.
In August the Financial Times (FT) posed the question
"Is Britain really as poor as Mississippi?" What is clearly a fact is that 47 years of EEC/EU membership has been a economic failure for the UK resulting in a massive trade deficit, and poor GDP per capita.
Now that the UK is free from the restrictions of the EU we are able to introduce our own laws and trade deals, i.e. restored sovereignty. Outside of the EU, the UK economy has the potential to grow much faster as has the US. In 2008, the Eurozone and the US had equivalent gross domestic products at current prices of $14.2 trillion and $14.8 trillion respectively. Fifteen years on, the Eurozone's GDP is just over $15 trillion, while US GDP has soared to $26.9 trillion. (Ref.13 )
2023 was a particularly successful year for the UK van industry, UK businesses invested in 341,455 new light commercial vehicles in 2023, which represented a huge 21.0% increase compared to 2022. (Ref. 14)
Business Failures
There are constant negative stories on this thread about small sectors of the UK economy struggling due to Brexit, but with the roll-over of existing trade deals the UK had in the EU and the introduction of new trade deals, the majority of Britain’s major manufacturers are now viewing the UK as a more competitive place to locate their activities (Ref. 15) Nevertheless it would be remiss of me to pretend that some businesses have not suffered as a consequence of the pandemic, high interest rates and costs such as energy and wages, the downturn of the world economic growth, or indeed Brexit.
It is usual for me to review business successes but for once I will comment on business failures. 2023 saw a record number of insolvencies. This might seem be bad news and of course it is bad for those that have suffered, but it is also a positive sign of the growth of new UK business post Brexit. A fifth of new small businesses fail within the first year, and over a half within three years. (Ref. 16) Larger company start-ups fare better but the rate of failure is still very high in the early years. The pandemic had a severe impact on business but statistics clearly show that recovery is under way (Ref. 17)
Since Brexit the UK has seen record start ups with an amazing over 1.5 million (m) new companies started in the first two years. (Ref. 18) With record start ups, we can expect record failures to occur. A record 900,000 new businesses were incorporated in 2023, up 12% on 2022, according to the New Startup Index published by NatWest and Beauhurst. (Ref. 19) So we can expect 2024 will see record business failures.
Manufacturing
In October, The Economist reported that British manufacturing has been remarkably successful. According to the OECD, UK manufacturing productivity growth comfortably outstripped that of any other G7 country in the 14 years after the onset of the financial crisis in 2007. UK gross value added per manufacturing employee rose by 37.3% between 2007 and 2021, against an average of 12.1% among the rest of the G7. (Ref. 20)
From Q1 2015 to Q3 2023 the UK has grown manufacturing volume by 7% whilst Germany's volume has fallen 5%, the USA fallen 1%, and France's manufacturing volume is the same level. Italy's has increased by 4% but as I have repeatedly pointed out, Italy's GDP, like Japan's, is well below where it was in 2008 and is still playing catch-up. (Ref. 21)
A major shift in UK manufacturing is now taking place. World events such as the pandemic and the war in Ukraine and terrorist activity is putting huge strain on world supply chains and there is a strong move towards reshoring. Manufacturers who thought it beneficial to move production to where labour was cheap, such as China and Eastern Europe are now reversing that policy. Many are investing heavily in automation and AI. (Ref. 22) The process is now being assisted by government. (Ref. 23) Despite all the world issues and economic strains, in 2023 the UK continued to be a world top ten player in manufacturing. (Ref. 24)
A2 Employment and Income
The number of payrolled employees in the UK continued to be at an historically record high level at over 30 million. (Ref. 25)
Economic inactivity continues to be high post pandemic due to high levels of long term sickness, and many over 50s taking retirement during the pandemic. (Ref. 26) Furthermore, record numbers of young people are staying on in further education, which bodes well for the future.
The number of job vacancies declined during 2023 due to the slow down of the economy. However the number of job vacancies is still well above all the years the UK was an EU member and suffered from freedom of movement. (Ref. 27)
The rate of redundancies continues to remain generally lower than it was during decades of EU membership. (Ref. 28)
It is now over a decade since Cameron promised a referendum on EU membership.(Ref. 29) Virtually every employment parameter^ for UK workers has improved from most UK workers' point of view since January 2013 despite the huge negative impacts of the government austerity, the pandemic, the war in Ukraine and its consequential impacts on inflation and interest rates. (Ref. 30)
(^ employment rate, unemployment rate, economic inactivity rate, redundancy rate, job vacancies)
Earnings Growth.
Earnings Growth December 2023 (Ref. 31)
G7: Italy 7.9%, US 7.02%, UK 5.8%, Germany* 5.3%, Canada 3.8%, France 3.8%, Japan 1%
Other countries: Netherlands 6.94%, Spain 4.03%, EU 3.8%, Euro zone 3.1%
*Note Ref. 32
Real Wage Growth, i.e. Earnings Growth - Inflation rate December 2023
G7: Italy 7.31%, US 3.62%, UK 1.8%, Germany* 1.8%, Canada 0.4%, France 0.1%, Japan -1.6%
Other countries: Netherlands 2.94%, Spain 0.93%, EU 0.4%, Euro zone 0.2%
*Note Ref. 32
Real wage growth returned a positive value in June, after 13 months of negative real growth. This compares very favourably with the last recession in 2008 when negative wage growth persisted for six years bar five odd months. (Ref. 33) Undoubtedly had freedom of movement been in place, negative wage growth would have persisted much longer.
This shows a major benefit of Brexit as from 2008 to 2014 there was typically 300-400,000 net immigration per year to the UK that included 100-200,000 EU citizens competing for UK jobs with UK citizens; hence depressing wages and reducing job opportunities in the UK for UK citizens. Immigration is now much higher mainly due to foreign students, with EU migration now being negative. Work permits are only issued for jobs that need filling because there are not enough UK citizens taking those jobs, consequently employers are having to compete to hire workers with higher wages (Ref. 34), and/or "import" labour for temporary, seasonal, or occupations on the government's skilled worker list.
Despite a technical recession, there continues to be very high demand for workers. For example, NHS employment increased by 89,000 in 2023 to a new record of 2.01 million. (Ref. 35)
A3. Unemployment 2023 (Ref. 36)
G7: Japan 2.4%, US 3.7 %, UK 3.8%, Canada 5.8%, Germany 5.8%, Italy 7.2%, France 7.5%
Other countries: Netherlands 3.6%, EU 5.9%, Euro area 6.4%, Spain 11.76%
UK unemployment rose by a fraction of a percent during 2023, peaking at 4.3% in July but then declining back to where it started at the beginning of the year. (Ref. 37) Conversely Germany's and France's unemployment rates increased during 2023 and in France's case rose to double the UK's rate. The UK continues to enjoy lower unemployment than most of the EU and the Eurozone. This is despite a sharp rise in work visas granted to 337,240 in 2023, 26% higher than in 2022, and almost two and half times more than 2019. This increase was driven by ‘Skilled Worker – Health and Care’ visa grants that almost doubled (+91%) to 146,477, largely driven by ‘Care workers and home carers’, representing 89,236 grants in 2023. (Ref. 38)
After the Brexit referendum there was a sharp drop in net migration from the EU to the UK. (Ref. 39) This led to a sharp fall in unemployment. Despite the record increase in migration to the UK in recent years, unemployment has remained at levels not seen since before the UK joined the EEC in the 1970s. (Ref. 40) This is because lawful immigration is now controlled and, despite what appears in the media, UK businesses are generally thriving. Over 80% of UK workers are employed in the services industry, and according to Forbes Advisor, the health and social care sector has more start-ups than any other and among the best business survival rates in the country.
The fall in unemployment started before the Brexit referendum due to the growth of the east European economies making it less attractive for their workers to seek work in western Europe. There can be no doubt the Brexit referendum result accelerated this process, followed by the pandemic causing many to return to their homelands. Nevertheless unemployment would almost certainly be higher in the UK today were it not for immigration controls on foreign workers. It seems however there that there is more concern that multi-millionaire business owners are struggling to recruit and pay higher wages, than celebrate that there are 100s of 1000s less people unemployed than when the UK was in the EU.
A4 Inflation December 2023 (Ref. 41 )
G7: Italy 0.59%, Japan 2.6%, Canada 3.4%, US 3.4%, France** 3.7%, Germany 3.7%, UK 4%.
Other countries: Netherlands 1.2%, Euro area 2.9%, Spain 3.1%, EU 3.4%, Sweden 4.4%
**Note: A HoC briefing published on 19th January stated that France's inflation rate was higher than the UK at 4.1% (Ref. 42)
Food inflation rates 2023 (Ref. 43):
G7: US 2.7%, Germany 4.9%, Canada 5%, Italy 5.9%, Japan 6.7%, France 7.2%, UK 8%
Other countries: Netherlands 4%, Sweden 5.29%, EU 5.87%, Euro area 6.1%, Spain 7.3%
UK inflation (CPI) fell throughout 2023 from its peak in October 2022. Whilst this is gratifying it does not help those that have suffered as a consequence of high inflation. During 2023 UK inflation did not fall as fast as other nations, but it should be remembered that UK inflation did not start rising till after February 2021, whereas other countries inflation rates started to rise earlier, such as Germany which started to increase in July 2020. UK inflation has been the highest of the G7 due to a slower rate of fall. This can be partly attributed to the UK having higher average wage increases and higher GDP growth than some other countries, but I believe mainly due to the UK government's lower intervention to curb inflation than other governments, which I covered at length in previous reviews. The government did intervene to cap the worst of energy prices, but generally left it to the BoE to reduce inflation.
A5 Trade
UK 2023 exports increased by 2.6% on 2022's record level of £837.8 billion to £859.2 billion. This increase is despite a sharp reduction in the price of energy and directly related goods such as chemicals derived from oil and gas. The increase in exports was achieved by an excellent increase in services exports of over 13% to £466.6 bn. (Ref. 44)
£859.6 bn is 32% GDP. In the last two years exports have been at their highest level ever expressed as a % GDP at over 30%. (Ref. 45)
As to be expected imports reduced in 2023 due to the large reduction in the cost of fuel imports by >£40 bn. In 2022 the UK's energy bill for imports more than doubled to £117 bn. (Ref. 46) 2023 saw a huge reduction in the cost of energy imports. (Ref. 47)
The UK is not alone in this respect. Germany saw a large reduction in imports in 2023, but unlike the UK, Germany's exports also declined in 2023. (Ref. 48)
Balance of Payments
To quote from the ONS latest report:
"A current account deficit, which the UK has experienced each year since 1984, places the UK as a net borrower with the rest of the world, indicating that overall expenditure in the UK exceeds national income." (Ref. 49) There are constant complaints on this MB about successive UK governments not spending and investing enough of public services and infrastructure. That will forever be the case whilst the country functions with a huge negative balance of payments. 47 years of EEC/EU membership led to a trade deficit with the EU of £0.5 billion
every week. As if that was not enough the UK has made a cumulative net financial contribution of £1 trillion to the EEC/EU during membership in today’s value of the £. Furthermore, the UK has become increasingly less self-sufficient in food and increasingly dependant on the EU. On top of those imbalances, the UK became dependant on the EU for exports, to such a degree that now that three of the main UK export customers (namely Germany (2nd highest after the US), the Netherlands, (3rd), and Ireland (4th)) have been in economic contraction during 2023, it has severely negatively impacted UK exports. (Ref. 50) It was vital to leave the EU to get onto a new course to cease to be a net borrower and earn our way in the world and create the resources to invest in public services and infrastructure.
The pandemic, world political tensions, and Brexit have triggered a significant shift in the UK trade pattern. The pandemic lockdowns and post pandemic shortages have led to the UK turning to more home produced products resulting in production being directed more to the home market, rather than exports, and lower imports of some products.
Some produce has seen an improvement in trade balance in 2023 such as dairy products (Ref. 51)
The UK is not alone in changing trade patterns. Both the UK and US are reshoring significant manufacturing so as to benefit from quicker turnaround times compared to ordering from overseas, and reducing supply chains.
I have discussed UK trade balance and intensity further in appendix 3.
The UK's trade relationships with the rest of the world continued to improve during the second half of 2023.
On 16th July the UK signed the treaty confirming the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – the Indo-Pacific trade bloc now worth £12 trillion in GDP. As an immediate consequence some goods will see further duty reductions, tariffs are also eliminated faster on some sensitive goods, such as cars, beverages and agricultural products, and the agreement has the effect of increasing quotas applied to certain products. The anti Brexit view is that the UK already had trade deals with many of the CPTPP members, but these were rolled over deals from EU membership and are full of quotas, tariffs and red tape, which can now be progressively removed on a one to one basis. The UK will benefit from enhanced market access for dairy products in Chile, Mexico and Japan; medicines and engines in Vietnam; and the removal of Malaysia’s tariffs on exported whisky and chocolate. Time will tell what trade benefits these will bring, not only in trade but increased reshoring. Cadbury brought some of their chocolate production back to the UK from the EU after Brexit and will now have better access to Pacific rim economies; other manufacturers could do the same if they can get better access to CPTPP markets from the UK.
The Electronic Trade Documents Act was passed in July making trade more straightforward, efficient and sustainable. This legislation will move trade away from paper, improve efficiency, cut costs, reduce trade’s carbon footprint, and it is expected that the UK economy will benefit from over £1 billion savings over the next decade. This world beating legislation, which makes the UK the first G7 country to place electronic trade documents on the same legal footing as paper documents, resulted in the first ever fully digitalised goods shipment landed in Singapore from Burnley on 24 September. (Ref. 52)
Certain minerals are deemed critical to modern industry such as cobalt and lithium. China has come to dominate critical mineral processing and has started to weaponise critical minerals exports, restricting access for political leverage. In September, the UK and Japan made a joint commitment to strengthen supply chains for critical mineral resources, including those used in semiconductor production, and enhancing energy affordability for a sustainable future. (Ref. 53)
In October it was announced that New Zealand and the UK maintained their top two positions in the Hinrich Foundation-IMD Sustainable Trade Index. The UK was ranked 2nd in the environmental pillar, 4th in the societal pillar, and 5th in the economic pillar.
Hinrich Foundation is an Asia based philanthropic organization that works to advance mutually beneficial and sustainable global trade. IMD is an independent academic institute. The index covers 30 countries, excluding the EU, and encompasses the vast majority of world trade. (Ref. 54)
Earlier in October, the ONS issued revised figures for UK's total exports in 2022 stating they were worth £834bn, up from £815bn previously reported. 2022 was a record year for the UK’s services exports in particular as they topped £400bn for the first time, and new ONS data estimates they were worth £411bn in total in 2022, which is £10bn higher than the original estimation of £401bn. This revision followed the previous month's upward revision of UK GDP for 2021 and 2022. It is a constant feature of ONS and OBR reporting/forecasting that they make conservative reports, only to upgrade their statements at a later date.
Further to The Atlantic Declaration trading alliance with the US national government that I reported at length on in the Q2 review on page 1,558, in November the UK signed its seventh memorandum of understanding with an American state Florida, that encompasses a range of initiatives to promote and enhance service trade. (Ref. 55) Florida was the largest state to commit to enhance trade relations, promote sustainable growth, increase investment, and strengthen emerging and innovative industries with the UK prior to the recent trade pact with Texas in March this year (Ref. 56). Florida's economy is larger than Spain's, the fourth largest economy in the EU. The MoUs are with Indiana, North Carolina, South Carolina, Oklahoma, Utah, Washington, and Florida and have a combined GDP of £3.3 trillion, which is slightly less than Germany (before the Texas agreement). These MoU do not constitute trade treaties, but for example, the MoU with Florida is designed to make it quicker, easier, and cheaper for UK and Florida firms to do business and is targeted at sectors in which the UK and Florida have particular strengths such as space, fintech, AI and legal services. The key issue for me is that the American economy continues to grow strongly, whilst that of western EU is stagnant. The future wealth of the UK depends on building strong trade relationships with the world's fast growing economies like the US. The trade between the UK and US in the four quarters to the end of Q3 2023 increased 16.8% in current prices from the four quarters to the end of Q3 2022.
The UK demonstrated its continued support for Taiwan by signing an Enhanced Trade Partnership in November that Taipei hopes will further boost its case to join a major pan-Pacific free trade pact and bolster the island's ties with other European states. Taiwan views Britain as an important democratic partner despite the lack of formal ties, noting its concern over stepped-up Chinese military activities near the island, which Beijing views as its own territory, and support for Taiwan's participation in global bodies such as the WHO. (Ref. 57)
The UK has also continued to support Ukraine through the UK and Ukraine digital trade agreement, made in late 2022 and which I reported in my Q1 review. As part of this agreement the UK and Ukraine have now agreed to launch a new initiative that will improve the tech sectors and further protect Kyiv from Russia called the 'UK-Ukraine TechBridge' which sets out to support Ukraine in its economic recovery and resilience against its financial collapse. (Ref. 58)
In December the UK agreed a new financial services deal with Switzerland that has been made possible due to the UK’s departure from the EU. Called the Berne Financial Services Agreement it enables the frictionless, cross-border provision of financial services between the UK and Switzerland across areas such as asset management, banking, and investment services. Trade between the UK and Switzerland has grown by 53% from 2016 to 2022. (Ref. 59) Switzerland may not be in the world's top 20 economies, but it is in the top 10 UK trading partners, largely as a consequence of both our economies being heavily into financial services.
In addition to the above, earlier in 2023 new trading arrangements were agreed with Israel, Kenya, the Philippines, and Ghana. (See previous reviews.) A UK government spokesperson recently claimed
"In just a few years, we’ve negotiated more free trade agreements than any other independent country in the world." It must be remembered of course that negotiating improved trading arrangements does not in itself increase trade, businesses have to take up the opportunity created.
A6 Finance
UK gross fixed capital formation (GFCF) continued at the best level not seen since before the 2008 financial crisis (Ref. 60), reaching over £430 bn in 2023 (Ref. 61); >2% increase despite the slow down due to high interest rates from the peak in quarter 1. According to the ONS business investment report in March, UK annual GFCF, chained volume measures, seasonally adjusted, was the most impacted in the G7 by the pandemic in 2020, but has recovered strongly since and investment growth has only been exceeded by Italy and the US in the G7 since Q1 2019. In 2023, only Italy recorded a faster rate of investment growth than the UK among G7 nations.
In July the World Bank reported that UK fixed capital formation for 2022 was the highest value ever (Ref. 62) and 18.33% of GDP, matching the highest year for a quarter of a century. (Ref. 63)
Reference 63 shows that since Brexit GFCF expressed as %GDP has returned to the pre-2008 financial crisis level. It is still however well below the level pre-EU formation at Maastricht, since when investors have considered it better to invest in Europe or overseas instead of in the UK. Hopefully now the UK has left the EU we will see GFCF as %GDP return to the levels we saw in the 1970s as UK investors, such as pension funds, switch to investing in the home market.
The World Bank data shows UK GFCF increased by 8% in 2022, on the back of a 7.4% increase in 2021. Both the first two years post Brexit were the highest increase in investment since the peak Thatcher year 1988 and only exceeded 3 times during the 47 years of EEC/EU membership. (Ref. 64)
Business investment in the UK increased by 6.1% in 2023 (Ref. 65) getting off to a quick start in H2 of 2023 when in July Bahraini Crown Prince Salman Bin Hamad Al Khalifa announced a £1 billion investment and agreed a new digital economy partnership with the UK. (Ref. 66)
In July it was announced that an automotive powertrain company is being established by China’s Geely Automobile Holdings and French automotive giant Renault Group and it will have its headquarters in the UK. (Ref. 67) Renault and Geely have said that the new company will use its UK headquarters to
"consolidate operations, build on synergies, and define future plans." The new company's operational centres will be in Madrid for Renault Group and Hangzhou Bay, China for Geely. Having worked for a French international company for 7 years, I find it stunning that a French major multinational like Renault have decided to put a subsidiary HQ in London, clearly demonstrating the leading position of the UK in the post Brexit world.
With full employment, high numbers of job vacancies, high wages and energy costs, and very low unemployment, it is highly unlikely any multinational is going to invest in a single huge facility in the UK requiring many thousands of employees. Apart from anything else, British workers generally don't want to work on production lines, or for that matter, in jobs such as harvesting crops, or in slaughter houses. They are seeking or aspire to white or pink collar jobs. It is far more likely to be productive for the government to facilitate clusters of high tech industry such as the proposed investment zones (Ref. 68), the first one of which was announced in July and will be in South Yorkshire (Ref. 69). The second zone announced is in Liverpool (Ref. 70) with further zones proposed in Greater Manchester, Tees Valley, West Midlands, West Yorkshire, East Midlands, and the North East, the last two being Mayoral Combined Authorities.
While the FT continues to talk down the UK's foreign direct inward investment there is clear evidence of a change in attitude. In the West Midlands total FDI projects have increased from 143 to 181 year-on-year, with jobs created increasing from 5,571 to 8,252 (48%). In terms of Net Zero related projects, this amounts to 34 projects with 3,145 new jobs. The number of new jobs in the West Midlands will make up 10.4% of the UK total for 2022/23, an increase of more than 50% compared to last year (6.6%). (Ref. 71)
The severe shortage of labour, higher labour costs, and government pronouncements of intent to reduce immigration will drive investment in automation. The UK currently ranks 24th in the world on robot density with a value of 111 which is below the world average. (Ref. 72) Consequently the UK has huge potential to improve productivity. Historically UK manufacturers have resisted automation on the grounds of expense and the availability of cheap labour from Europe. There are signs of change now labour is not freely available such as Yaskawa, a global technology supplier in segments drives, motion controls and robotics, opening a new state-of-the-art UK headquarters and manufacturing facility in Sunderland.
The UK has improved its financial inclusivity ranking, climbing 7 places to achieve seventh out of 42, according to the 2023 Global Financial Inclusion index. (Ref. 73)
July saw Europe's first large-scale lithium refinery in Teesside receive approval. Green Lithium received planning permission for the 58-acre development which will support 1,200 jobs in its construction and create 250 full-time roles once operational in 2027. (Ref. 74) An annual production capacity of 50,000 tonnes of battery-grade lithium chemicals is enough lithium to provide batteries for one million EV car batteries using a process that is expected to cut lithium’s current carbon footprint by 80 per cent. (Ref. 75)
In August Britain’s first lithium mine in Cornwall, the first of its kind in Europe, secured £53.6m of investment led by the UK Infrastructure Bank. (Ref. 76) The project aims to produce over 20,000 tonnes of lithium carbonate annually by the decade’s end, sufficient to power half a million car batteries each year for approximately 30 years.
Also in July, Tata, the owner of Jaguar Land Rover (JLR), confirmed it will build a £4 billion electric vehicle battery factory in the UK. (Ref. 77)
In September, Tata Steel and the government announced a joint agreement on a proposal to invest in electric arc steelmaking at the Port Talbot site with a capital cost of £1.25 billion inclusive of a grant from the UK Government of up to £500 million, subject to relevant regulatory approvals, information and consultation processes, and finalising detailed terms and conditions.
In November, Chinese (Jingye Group) owned British Steel announced a £1.25 bn proposal to adopt electric arc furnace steelmaking, subject to appropriate support from the UK Government. It's proposed to install 2 electric arc furnaces, one in Scunthorpe, the second at Teesside. (Ref. 78)
In previous reviews I have reported the major investments in UK logistics, particularly rail, ports and distribution centres, and reducing the UK's dependence on Rotterdam and Antwerp. I have gathered together some of the logistics investments in 2023 in appendix 4.
London has secured the most foreign direct investments into tech from international companies since 2018, ahead of New York, Singapore and Dubai. (Ref. 79) The Global City's 2023 State of the Sector 2023 report in July stated
"The financial and professional services industry is the engine room driving UK growth. " (Ref. 80)
The ongoing investment in London continues to demand more office space. Eleven skyscrapers in London’s financial district have been approved for building within the next seven years due to the increasing demand for office space in central London. Planning applications for building in the City have risen by c.25%, from 820 to 1,023. (Ref. 81)
In November Nissan announced a £2 billion investment to expand electric vehicle production in Sunderland to three models. Makoto Uchida, the chief executive of Nissan, a company originally very critical about the UK's exit from the EU, pronounced that the impact of Brexit on its UK operations is now negligible. He urged the country to be more optimistic about its prospects. (Ref. 82)
The investment will include up to £1.12bn by Nissan in its UK operations, with the rest provided by partners such as battery partner Envision AESC, who began construction of its battery factory in Sunderland in 2022. The project is expected to complete this year and start battery production next year. (Ref. 83)
This announcement by Nissan, coupled with the earlier announcement by Tata regarding JRL paints a very different picture to the Guardian's claim that
"Brexit has wrecked the car industry" and
"There is no hope for Britain’s car industry" made last May. (Ref. 84)
Also in November, Sunak took a leaf out of Macron's playbook to attract FDI by addressing more than 200 top CEOs and investors, plus leaders in UK science, tech and creative industries at Hampton Court Palace, announcing £29.5 billion of investment in a whole range of activities. (Ref. 85) Projects in tech, life sciences, infrastructure, housing and renewable energy have secured the investments, with funding planned to create more than 12,000 jobs.
November also saw the first fruits of the UK's closer economic ties with Australia when Australian pension fund Aware Super has made a £5.25bn investment commitment to the UK and Europe through a new office based in London.(Ref. 86)
Australia may only be the UK's 21st largest trading partner but trade is growing rapidly with an 18.5% increase in exports reported in the last year to date figures. (Ref. 87)
Most of the above relates to the UK's major businesses, however the British Business Bank have reported that smaller business asset finance new deals increased by 7% in 2023 to £23.5bn, the third yearly increase in a row and the highest level on record.
Industry leaders have said Britain is becoming more attractive than Europe for manufacturing firms to invest in, and there is
“a newfound sense of optimism”. Over half manufacturing chiefs believe the UK is now a competitive location for their business, according to a new report from industry group Make UK and PwC. (Ref. 88) This report states that the UK is set to pull further ahead of European rivals and that the majority of bosses also believe Britain’s competitive edge over Germany, France, Italy and Spain will grow rather than shrink in 2024. It appears that the chief executive of Nissan is not alone in his view. Time will tell.
B. Change Enactment
B1. Legislation
The Economic Crime and Corporate Transparency Bill became law in October 2023, making significant changes to the UK's economic crime and fraud regime, including a new "failure to prevent fraud" offence for large organisations and a widening of corporate criminal liability for economic crimes committed by senior managers. (Ref. 89) The new law has provisions to allow seizure and freezing of cryptocurrencies without a conviction. Such provisions are added to strengthen authorities’ ability to tackle cybercrime, scams, and drug trafficking. The UK is the leader in Central, Northern, and Western Europe in terms of raw cryptocurrency transaction volume, and ranks third globally. (Ref. 90)
B2. Foreign Affairs & World Influence
Global Britain continues to play a world leading role:
In July, the UK chaired the first United Nations Security Council meeting on artificial intelligence at the UN headquarters in New York.
In October London hosted the 4th annual Vertical Farming World Congress.
Also in October, the UK hosted and co-chaired the Principals' meeting of the Minerals Security Partnership (MSP) for the first time, at the London Metals Exchange. MSP is a group of 14 partners, representing over 50% of global GDP, that focusses on promoting responsible investment and sustainable finance in critical mineral supply chains.
In Spring 2024 the UK will host a new global energy security conference, with the objective of increasing security and resilience of the world's critical energy supplies, thereby playing a world leading role.
London was declared the world's best city in October for the 8th time, out of 270 of the world's principal cities by Resonance, the tourism, real estate and economic development consultancy. (Ref. 91)
Sticking with London, I noticed that the QEII Centre in Westminster had its third best trading performance since opening in 1986 last year and hosted over 320 events. (Ref. 92) That had me wondering about the EU egg-shaped Europa building, the £279 m space age home of the European Council that Cameron unsuccessfully tried to oppose building. As far as I can gather it is used for summit meetings about 50 days per year. (Ref. 93)
The £1.3 bn major regeneration of the Olympia centre, one of the biggest building sites in London and one of the largest regeneration projects in Europe, continued through 2023 (not due for completion till 2025). Olympia is not going to be just an exhibition space but a cultural hub that will rival any other arts centre in Europe. The 14-acre estate is being completely redeveloped and will include a huge entertainment venue, exhibition space, four-screen cinema, 1500-seat theatre, a 550,000 square-foot office building, two hotels, restaurants, landscaped roof terraces and a school for the performing arts plus of course numerous shops.
What Steen Rasmusson wrote in 1934
"LONDON. The Unique City: Die Geschichte einer Weltstadt", is still true today, 90 years later.
The UK played a world leading role in hosting the first AI summit meeting at Bletchley Park in November. (Ref. 94) Many of the 29 delegation at Bletchley were keen to claim lead in AI regulation, from European diplomats noting they had started the regulatory process four years ago to Americans spouting the power of their new AI safety institute. The UK government has adopted the position that it is too soon to regulate due to how fast the industry is moving. Time will tell who has adopted the wisest policy.
A few weeks after the AI summit, Microsoft announced £2.5 bn investment in the UK over the next three years to expand its next generation AI data centre infrastructure, bringing more than 20,000 of the most advanced GPUs to the UK by 2026. (Ref. 95)
OpenAI opened an EU HQ admin office in Dublin last year to comply with EU regulations, however, OpenAI, backed by substantial investments from Microsoft, have stated that the London office, (its first international office outside of the US, employing more people than the Dublin office), would focus on research and engineering. (Ref. 96)
In September the government agreed a new strategic partnership with Singapore to grow the UK’s economy and enhance shared security. (Ref. 97) The agreement is intended to harness the UK and Singapore’s expertise in new technologies like cyber and AI to create jobs in both countries.
During 2023 UK tech sector investors have reduced investment due to economic uncertainty and rising inflation, but despite this the UK continues to host the third most valuable tech sector globally, behind China and the United States.
According to Startups 100 unique data, average funding for AI startups in the UK increased by 66%. This represents an increase in average funding of £5.3m in 2021 to £8.6m in 2023. (Ref. 98)
Global Britain continues to be one of the most generous countries in the world when it comes to foreign aid and providing shelter to refugees. The UK is the second highest contributor to the United Nations humanitarian aid organisation the Office for the Coordination of Humanitarian Affairs (OCHA) (Ref. 99) Unlike some other countries, the UK donation is not largely earmarked and not donated linked to "something in return". Over 200,000 people have moved to the UK under the Ukraine Family Scheme and Ukraine Sponsorship Scheme. (Ref. 100) The number is considerably less than Germany, Poland, and Czech Republic but still highly commendable. (Ref. 101) Most Ukrainians expect to return to their homeland someday, unlike the >150,000 Hongkongers who have migrated to the UK in recent years and virtually all intend to stay in the UK.
For once it was not London or Glasgow grabbing the headlines, but Cardiff in a recent EU report which placed Cardiff among top European cities for quality of life. Cardiff can make a claim to be the most welcoming city in the continent for people from different walks of life with the Welsh capital scoring highest in two of the five categories.
Ninety-five per cent of Cardiff residents believe the city is a good place to live for immigrants from other countries, 5% ahead of Portuguese capital Lisbon in second. Cardiff is also ranked first when it comes to good places to live for families with young children, with its 96% satisfaction putting it narrowly ahead of Oulu in Finland, Braga in Portugal and Leipzig in Germany. (Ref. 102)
In April the Association of Accredited Public Policy Advocates to the European Union published a study of soft power (a nation’s presence, reputation and impact on the world stage) and placed the UK second only to the United States (Ref. 103)
Brand Finance's 2024 Global Soft Power Index reaffirms the UK's Number 2 position in world soft power. (Ref. 104)
B3. Relations with the EU
In September relations with the EU took a step closer with the UK rejoining a revised Horizon Europe and Copernicus programmes with a new agreement. (Ref. 105)
How much damage was done by over 2.5 years disconnect is impossible to say, but I doubt it will be very much. We used to say:
"Production work with stopwatches, Engineering work with clocks, Accountants and Commercial work with monthly calendars, whilst Research work with almanacs!"
Conversely the UK government has chosen not to associate to the Euratom Research and Training programme and thus, the Fusion for Energy Programme, but instead to invest in up to an additional £650 million until 2027, to support the UK's own fusion initiatives. (Ref. 106)
A new world record for fusion energy production was set recently at the UK-based JET laboratory of the UK Atomic Energy Authority in Culham . (Ref. 107)
The UK is a leader on the commercialization of fusion, and the Fusion Industry Association have welcomed the government programme. This is unlike academia, who continue to whinge about the Turing Scheme, which has replaced the EU's Erasmus+. The Turing Scheme is proving a great success however, despite some nit-picking in some quarters. The number of students has grown from 28,997 in 2020-2021 to more than 40,000 pupils, learners and students in the academic year 2023/24 and there were more applications to the Turing Scheme than ever before. Schools, colleges and universities across the UK are sharing almost £105 million to fund placements around the world and 60% of the placements are for participants from disadvantaged backgrounds, an increase on earlier years. (Ref. 108)
Erasmus+ was used by only 9,993 UK students in the pre-Covid year of 2018/19 (Ref. 109) and has 32 participating European countries whereas Turing includes destinations such as China, Australia, the United States and Canada, the four most popular destinations, plus over 150 more countries.
The UK has little cause to join forces with the EU when it comes to higher education. The UK has 3 of the world's top ten ranked universities in Oxford (1st), Cambridge (=3rd), and Imperial (10th) . UCL is placed 22nd and Edinburgh 29th, one place above the EU's top ranked university Technical University Munich. More UK universities are ranked in the The Times World Top 100 than in all 27 EU countries combined. (Ref. 110)
The latest review of student migration by the University of Oxford reports that student enrolments from the EU fell by 53% in the 2021/22 academic year. However, as though to emphasise the global role of the UK, student migration to the UK reached an all-time high in 2022, as more than 484,000 visas were issued, the top countries of origin in 2021/22 being China (26%), India (23%), and Nigeria (9%). Post Brexit the UK rose to the second most popular destination in the world for international students in 2021. (Ref. 111)
In October, the German finance minister issued an open invitation to the UK to reach a new deal to improve trading relations that would reduce trade barriers and
“obstacles in daily business life”. How different is this from the relations predicted 7 years ago by the Brexit naysayers, who forecast it would take 10 years for Britain to exit the EU, to set up a new trade and related agreements as well as negotiate fresh trade deals? (Ref. 112)
B4. Defence
The UK may be the world's sixth largest economy, but it is far from the richest per capita country in the world, being about 28th on some rankings. However the UK is a leading country in the defence of democracy and has played a leading role in supporting Ukraine's democracy.
The UK has not been the most generous financially in terms of provision of aid to the Ukraine but has led the way by being the first country to give battle tanks to Ukraine and missiles that have a range long enough to strike anywhere in the country. (Ref. 113)
In June, the UK, the US, the Netherlands and Denmark announced that they would form a partnership to address Ukraine's most urgent air defence requirements. (Ref. 114)
In December, Japan, UK, and Italy signed an agreement to establish a joint organization to develop a new advanced jet fighter, as the countries push to strengthen their cooperation in the face of growing threats from China, Russia and North Korea. (Ref. 115)
B5. Agriculture & Fishing
In July the government announced further steps to deliver a sustainable fishing industry and healthy marine environment and move away from the EU Common Fisheries Policy. £200 million worth of measures are aimed at producing a sustainable industry and try to reverse the decades of decline in fish stocks in British waters, which regrettably is still ongoing. (Ref. 116)
The UK's six Fishing Management Plans (FMP) are the first of 43 FMPs which, according to Mike Cohen, Chief Executive of the National Federation Of Fisherman's Organisations, implement the UK's proposals to breakaway from the impositions of the EU Common Fisheries Policy. (Ref. 117)
Fishing quotas for 2024 were agreed with the EU in December. It is pleasing that a more sensible approach to sustainability is now being agreed with some quotas being reduced, namely:
haddock in the Irish Sea (-14.5%) haddock in the Celtic Sea (-30.6%), whiting in the Celtic Sea (-50%), and plaice by-catches in the English Channel (-42%).Would this sustainability action have occurred had British waters remained under the EU Common Fisheries Policy? Or would fish stocks in British waters been destroyed the way the EU has destroyed the Mediterranean fish stocks? (Ref. 118) UK fishermen are disappointed because they expected Brexit to bring a bonanza to them, which is not the case. These measures, however, are sovereignty in action to preserve the UK's fishing industry in the long term which is in everyone's best long term interests. It should be noted that half of England's fishing quota is sold to foreign interests, and two thirds is held by the businesses of just 25 extremely wealthy owners.
As with fishermen, UK farmers voted to leave the EU on the promise of a better future. They did not take much persuading as between 2005 and 2020, the number of farms in the EU decreased by almost 40%, forcing approximately 5.3 million farmers out of business. The vast majority of these were small farms, covering less than five hectares of land. But on leaving the EU Covid struck, followed by the invasion of Ukraine and the UK government's budget was out of control. Consequently the promised bonanza for farmers has not happened.
In November, the government announced funding for:
firstly, the second round of the Improving Farming Productivity Grant, providing capital grants of £25,000-£500,000 towards robotic and automatic equipment, and will, for the first time, pay towards solar equipment.
Secondly, the third round of the Large R&D Partnership competition, designed to boost industrial research and experimental development projects.
Thirdly, funding through the Research Starter Round 4 competition to help growers or foresters
“who have bold, ambitious, early-stage ideas”; and
fourthly, funding for for the third round of the Natural Environment Investment Readiness Fund, to help farmers prepare nature projects that may attract investment from the private sector. (Ref. 119)
UK agriculture comprises of different types and mixes of farming and is therefore impacted in different ways by outside influences such as the weather, market conditions, and government policy. 2023 saw farmland reach record values. (Ref. 120)
2022/2023 saw some farmers' income increase such as cereals, dairy and horticulture, whilst others' incomes declined such as general cropping, livestock including poultry apart from pigs. (Ref. 121)
However forecasts for 2023/2024 are bleak for farmers. Apart from suffering one of the wettest Julys on record and wettest winters, farmers are in the unenviable position of long lead times for their products. So, for example they have had to incur huge price increases for the animal foodstuffs and fertilisers in 2022 due to inflation caused by the war in Ukraine and in 2023 were having to sell into a market with falling food inflation. In addition to this cost price squeeze UK farmers are having to compete with subsidised food imports which are uncontrolled from the EU, the government having delayed the introduction of EU food import control five times.
As though to add insult to injury when French farmers were starting their protests about their treatment by the EU in October, it was revealed by British Lion eggs, that food products with the British flag could also contain ingredients from outside the UK. (Ref. 122)
It is hardly surprising therefore that French and other European farmers having successfully got the EU Commission to retract its environmental measures, that British farmers are now seeking to exert the maximum pressure on the UK government to introduce controls on food imports.
Both UK and EU farmers need to recognise that Europe is the fastest warming continent in the world according to the European Environment Agency and that food output by traditional methods is bound to decline. The UK needs to reduce its dependence on the EU for food and spread its dependence on the rest of the world.
Food
Since the 1980s the UK has become less self sufficient in food production and increasingly dependent on the EU. That trend has started to reverse with the introduction of more modern farming methods and belatedly tighter controls on food imports which will increase the competitiveness of UK food production. October saw the UK host the 4th Vertical Farming World Congress in London. According to Forbes, the indoor vertical farming market was worth around $3 billion globally back in 2018. By 2026, it’s predicted to reach a massive $22 billion. We are in a pivotal time in British food production, with the investment in vertical farming continuing at pace:
In March ITVX reported that Smartkas, the Dutch agricultural technology firm, had opened the world's biggest vertical farm in Essex.
In May, House & Garden reported that entrepreneur James Lloyd-Jones was opening the world’s largest vertical farm in Gloucestershire.
In November, Fischer Farms completed construction of a new 25,000m2 vertical farm in the heart of Norfolk, reportedly the biggest of its kind in the world.
The momentum behind vertical farming is undeniable; time will tell how much these investments will be sustained and reduce the UK's high dependence on food from the EU.
B6. Environment
During H2 of 2023 it was widely publicised how the UK government has been rowing back on environmentally related schemes such as HS2, delaying the banning of new i/c engine cars, and granting permits for more oil and gas extraction. It has not all been negative though; in September, the Department for Energy Security and Net Zero announced a record number of clean energy projects which have received funding from the government’s renewables scheme. 95 clean energy projects have been successful with their bids, receiving funding of £227 million, enough to power the equivalent of 2 million homes. For the first time, geothermal projects have also been successful. (Ref. 123)
The cancellation of HS2 Phase 2 last year however was a bitter disappointment to me. It has become fashionable to berate expensive infrastructure projects. There was opposition to canals, railways etc. in previous centuries by those opposed to progress and NIMBYs, who in those days was usually some rich landowner objecting to a route over their property.. How much do we owe the Victorians today for their investment in infrastructure like railways and sewers, much of which modern society is still dependant on? It is invariably the case that all new infrastructure investments quickly become fully utilised, as evidenced by the new Elizabeth Line which last year started to average over 20 million journeys a month and became the UK's busiest railway. The UK needs to get into the 21st century regarding rail and connect our 5 largest^ (>1 million) centres of population with a new high speed network, so as to get traffic off roads and reduce air travel.
(^ London, Manchester, Birmingham, Leeds/Bradford, Glasgow)
During COP28 the UK government reaffirmed its commitment of £1.6bn to international climate finance projects for developing nations over the course of COP28.
2023 was a record year for the UK installing solar power. The UK is not a world leader as there are limitations due to most flat terrain given over to agriculture, and shortage of suitable land and poor weather conditions due to high cloud intensity. Nevertheless the UK is still in the world's top 10 countries. (Ref. 124)
Wind power offers greater potential in the UK which is second only to China. According to CBI Economics, the UK’s net zero economy grew by 9% in 2023, with solar energy being a key contributor. The Energy and Climate Intelligence Unit reported recently that the total gross value added by UK businesses involved in the net zero economy is now £74 billion.
In September the UK took a major step forward with the first in the new King’s Series of National Nature Reserves. This new initiative is not just to conserve nature but the first step in a programme to restore nature nationwide. (Ref. 125) This is a fitting honour for King Charles who was once regarded as the dotty prince but now renowned the world over as a passionate advocate for the environment. God bless him.
APPENDICES
Appendix 1
Previous Brexit reports:
Life After Brexit (20.11.2021) page 1,429
Review Of First Year Of Brexit (15.2.2022) page 1,440
Review Of First Year Of Brexit - Addendum (27.3.2022) page 1,452
Brexit 2nd Year Progress To Date (22.5.2022) page 1,464
Brexit 2nd Year 2nd Quarter Progress To Date (25.8.2022) page 1,490
Brexit 2nd Year 3rd Quarter Progress To Date (26.11.2022) page 1,508
Brexit 2nd Year (3.4.2023) page 1,530
Brexit 3rd Year Q1 (4.6.2023) page 1,543
Brexit 3rd Year Q2 (8.9.2023) page 1,558
Brexit 3rd Year Q2 Addendum (23.9.2023) page 1,562
It should be noted that figures released by governments are subject to later revision.
Appendix 2
2023 Second Half Recession
In the second half of 2023 the UK GDP declined by 0.4%, Germany -0.3%, France - zero, Netherlands - zero. GDP was £2,690 billion in 2023. (Ref. 126)
However unemployment in the UK reduced from 4.2% in June to 3.8% in December. Whereas in Germany unemployment rose from 5.7% to 5.8%, France from 7.4% to 7.5%,Netherlands 3.5% to 3.6%.
Why did UK unemployment decline (and employment rise from August) during a recession, whilst Germany's, France's, and the Netherlands' unemployment rates rose?
Answer: Because Brexit meant the end of freedom of movement and EU citizens coming and taking UK jobs.
Italy has appeared to have a good 2023 with increased GDP and employment and reduced unemployment. It should be recognised though that, whilst the other main European economies' GDP are at their highest ever levels, Italy's economy is much smaller than it was in 2008 and is playing catch-up. (Ref. 127)
UK Economic Growth Since 1950 - average annual increase in GDP (Ref. 128)
1950s - 3.2%
1960s - 3.45%
1970s - 2.7%
1980s - 2.6%
1990s - 2.15%
2000s - 1.7% (2008 financial crisis)
2010s - 2.0%
Since joining the EEC in the 1970s, UK economic growth has been miserably low. On page 1,567 I spelt out at length the economic damage done to the UK by EEC/EU membership. Surprisingly, since 1973, the year in which the UK joined the EEC, the per capita GDP of the UK economy grew by 103%, exceeding the 97% growth of the US, Germany's 99% growth and France's 74% growth. Notwithstanding that achievement, how much greater would UK growth have been had the economy not been constrained by EU regulations, and the 47 years of net financial contribution to support the economic development of other EU member nations. Nobody minds paying their share, but the UK was the fifth highest EU contributor per capita, despite being ranked eighth in terms of GDP per capita. (Ref. 129) Other countries with a higher GDP per capita were paying less per capita to the EU. Obviously the UK was not the only net contributor to the EU, but other countries benefited financially from hosting the EU administration in Brussels (€5 bn pa, + countless 1000s of lobbyists, reference 130), Strasbourg, Frankfurt, Luxembourg, plus the cost of well over €100 m pa moving the EU Parliament back and forth between Brussels and Strasbourg 12 times a year.
Since 2016 the number of UK civil servants has increased substantially. As usual the anti-Brexit media make great play of this as
"another Brexit benefit" (sic). I also regard it as a benefit. Firstly a third of the increase was during the pandemic to handle that crisis, and as soon as the pandemic started to end the rapid rise in employment flattened off. Secondly, the UK civil service has increased to carry out much of the activity previously done by Brussels such as trade deals. Personally I would much rather pay UK civil servants to negotiate on behalf of the UK than pay EU civil servants to negotiate on behalf of the EU. Furthermore the cost of paying UK civil servants largely recirculates within the UK economy rather than being spent in Brussels to the benefit of the Belgian economy. The UK has in effect imported jobs and another reason why UK unemployment is lower than many of the EU countries during a recession.
Appendix 3
Trade Balance & Intensity
After a short period of improvement following the UK joining the EEC, which most new members experience, the UK trade balance has been in decline particularly with the rest of the EU since Maastricht. It was essential to leave the EU to build trade faster with the rest of the world's countries and restore an equilibrium balance of trade. That is clearly going to take many years to achieve and there have been set backs with the pandemic and the war in Ukraine. Nevertheless the country is now set on the right course to get the UK trade back in balance and end the haemorrhaging of the economy with a huge negative trade balance. (Ref. 131)
In the 1990s companies started to relocate their manufacturing abroad. They more often went to China, where incentives from the Chinese government were generous, and the workers were cheap. The UK’s goods exports values are back to pre-Brexit and pre-Covid levels but have been steady in US dollar terms since 2006 as UK companies continued to move their manufacturing offshore and the UK economy became one of the lowest goods volume exporters in the G7. It is pleasing to note that in the OBR's latest "Economic and fiscal outlook" – 6th March 2024 (para.2.30), that they expect export volume to grow at three times the rate of import volume from 2024 to 2028. We'll have to wait and see as their predictions have been consistently wrong, usually being far too negative. (Ref. 132)
The OBR obstinately sticks to its 2016 pre-referendum forecast of long term (
"after 15 years ") doom and gloom from Brexit, which it nailed to its mast for the Cameron government, despite admitting in its latest report that since its last forecast as recently as November, virtually every economic parameter has improved in just four months.
The anti-Brexit media make great play of the OBR reporting that UK trade intensity (exports plus imports as a share of GDP) has not recovered in line with other G7 countries post the pandemic and naturally blame Brexit. But this factor is entirely due to trade in goods, whereas UK services trade growth has been the strongest in the G7. It reached around 12% above 2019 levels at the end of 2023, versus around 9% above in the rest of the G7 in the third quarter. As has been pointed out the UK is starting to reshore some manufacturing and becoming more self sufficient, which has the effect of reducing goods trade intensity. The UK's trade intensity at c.70% is less than some of our European neighbours, which is to be expected being an island country, but is substantially higher than Japan's c.47%, and America's c.27%. (Ref. 133)
So what is the size of the shortfall in trade intensity that the anti-Brexit media is making such as fuss about? Specifically, it is 1.7% below its pre-pandemic level from 2019, compared with a rise of 1.7% above on average in the rest of the G7. That is a 3.4% "divergence" and the ONS claim that their forecasts that the negative impact of Brexit on the UK economy
"appear to be broadly on track", their forecast being a 15% reduction in trade intensity after 15 years, compared to if Britain had remained in the EU. Personally I hope the UK becomes more self-sufficient like the US and Japan.
It should be borne in mind that countries with high trade intensity are more susceptible to external shocks. One reason I suggest why Germany and the Netherlands, with their very high trade intensity (100% and 177% respectively), are currently struggling economically.
On 3rd March a link was posted on this thread to a FT article
"UK Trade volumes suffer record 5 year decline" (Ref. 134)
As usual in the anti-Brexit press, actual figures are not used but a base point in time selected and a value of 100 assigned to each country/group and relative performance shown on a graph. The FT reason that volume is used to eliminate inflation, but that is immaterial as inflation has been largely the same for all the economies compared over the whole period. Comparing volume is a legitimate way of comparing but only really applicable to low value/high volume commodities such as foodstuffs and raw materials. The UK long ceased to trade in large volumes of those many years ago and today's UK goods trade is centred on high value/low volume products. The article refers only to goods and makes no mention of services that constitute half the UK's trade. Services represent a significantly greater proportion of UK exports than any of the other G7 countries, representing c.27% of their exports in 2020 compared with >46% UK exports. If the rest of the world is considered, the difference is even more stark with, for example, China's services exports being <10% of their total exports.
Comparisons are even more complex than the above. For example, price increase will often adversely affect volume, so less goods might be sold but the same revenue achieved. Brexit has also changed the methods of calculating such as "rules of origin" and indeed the ONS have changed their methodology of calculating trade by making more conservative assumptions.
I have repeatedly cautioned about the misleading "interpretations" that are occurring in both the pro-Brexit media and the anti-Brexit media, in the latter case making unprovable and flawed assumptions of what would have happened to the UK economy had the UK remained in the EU.
Comparisons need to be made as a gauge on "success" or relative performance, but it has to be kept in mind that all economies differ. In the G7 the US and Canada are major energy exporters and the cost of energy has been much higher in recent years. France's gas import bill is much lower than the UK's and Germany's as it has huge nuclear power capacity and is usually a power exporter. Japan is an odd ball case having grown year on year in terms of the Yen, but the Yen has dropped significantly in value relative to other major currencies, to such a degree that Japan's economy is now smaller than Germany's despite Germany's contraction in 2023.
It is claimed that the EU has grown faster than the UK since the Brexit referendum, which is true, but it is almost entirely due to the rapid grown of the less developed east European states. These states have received huge amounts of regional development aid from the EU; quite a lot of the funding from the UK till 2020! There are other factors at play though. The UK being a far more service biased economy was far more impacted by the pandemic than other countries. Conversely Germany is a far more manufacturing biased economy and has been more seriously impacted by the energy crisis following war in Ukraine.
It is generally agreed by all forecasters that the UK is expected to remain the 6th largest economy in the world. Global trade is projected to grow broadly in line with global GDP over the next 30 years. By 2050, it is expected to double in real terms and almost quadruple in dollar terms to reach close to $100 trillion. Emerging economies are likely to account for a growing share of trade as economic power shifts east. Seven of the largest emerging economies are projected to match the G7’s import market size by 2050. The industrial structure of global trade is very different to GDP as goods sectors dominate trade. But global trade is expected to gradually become more services-oriented over time. By leaving the EU and establishing closer trade relationships with the none EU world, the UK is positioning itself to take advantage of these long term developments. That does not mean the UK has turned its back on the EU or Europe generally. Economic "gravity" will mean the the UK will continue to trade strongly with the EU and other European countries. There is constant talk of "trade barriers" with the EU but the fact is that the UK has the most generous FTA the EU has agreed with any country outside of the EU or EFTA, with zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin. I'm confident that over time the EU will see the benefit of creating more frictionless trade and other mutually beneficial agreements with the UK such as travel/perform/reside for students/musicians/holiday makers/retired persons etc. plus mutual recognition of standards and qualifications etc. The EU would probably have more to gain than the UK, but I expect it will be a slow process with their innate protectionist attitude. Reference 135 provides a view of the future UK economy.
Appendix 4.
UK Logistics in 2023
The redevelopment of the former Honda works in Swindon has finally been given planning consent. Panattoni, Europe's largest logistics company are investing £700m creating 7,000 jobs at the site where 3,500 jobs were lost when Honda reshored production back to Japan following its trade agreement with the EU. (Ref. 136)
The investment at the Honda site is now under-way, but has already been topped by the UK's largest logistics investment at the West Midlands Interchange costing £1 billion. (Ref. 137)
Work continued throughout 2023 on Dubai's DP World's £350m fourth berth at its London Gateway logistics hub to increase capacity to accommodate the world’s largest vessels. Construction is scheduled to be completed by Q2 2024. OASIS Group became the second business to move to DP World’s port-centric logistics park since it became a freeport .
London Gateway handled over 2m TEUs in 2022, second only to Felixstowe. DP World has invested about £2bn in London Gateway so far. Another £1.5bn will be invested in the next 10 years. The site includes an adjacent 9.25 million sq ft logistics park, which is currently 50% committed and is now operating under free port status.
“There is a big ambition to grow the Thames and put it back at the centre of global trade,” says Ernst Schulze, the CEO of DP World UK. For hundreds of years, the Thames was the centre of world trade, and Greenwich was agreed to be the centre of the world.
In November, DP World received four new ‘state-of-the-art’ automated stacking cranes (ASC) which is the latest investment, totalling £56m, and coincides with the celebration of London Gateway’s 10th anniversary, marking a decade of growth and technological advancements in the UK’s port industry. The ASCs will service the £350m all-electric new fourth berth, the first of its kind in the world, which will boost capacity at the logistics hub by a third when it opens next year. (Ref. 138)
In October major works to deepen approach channels into the Port of Felixstowe was completed so they can accommodate the world's largest container vessels. The port’s berths 6&7 were upgraded in 2022 to provide four berths capable of handling vessels of over 20,000 TEU capacity. Berths 8&9 have now been upgrade to accommodate ships with over 24,000 TEU capacity. (Ref. 139)The largest container ship in the world is the MSC Loreto, capacity 24,346 TEU and visited the Port of Felixstowe in June, its first UK visit. (Ref. 140)
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