Brexit 2nd year (3.4.2023)
This is the seventh post in a series of posts listed in Appendix 1, where I endeavour to report UK performance and events since the UK left the EU.
This post focuses on UK activity during the 2nd year of Brexit up to January 2023.
In response to some comments on the length of these reviews, I have included a summary of economic issues in section A7 and added a section C reviewing how the world generally views the UK after Brexit.
A1 GDP Annual Growth Of Countries for 2022
G7: UK 4.1%, Canada 3.8%, Italy 3.7%, France 2.6%, US 2.1%, Germany 1.8%, Japan 1.1% (Ref. 1) Other countries: Spain 5.5%, Netherlands 4.5%, EU 3.6%, Euro area 3.5%
GDP Growth Q4 2022
G7: US 0.7%, Canada 0.4%, Japan 0.2%, UK 0.1%, France 0.1%, Italy -0.1%, Germany -0.2%
Other countries: Netherlands 0.6%, Spain 0.2%, Euro area 0.1%, EU 0% (Ref. 2)
In 2022, the UK annual GDP amounted to approximately £2.23 trillion, compared with £2.14 trillion in 2021, £1.99 trillion in 2020, and £2.24 in 2019. There was record 11% fall in UK GDP in 2020 as a direct result of the Coronavirus pandemic. The impact of the pandemic on the UK economy was greater than any of the other G7 nation and despite the strongest recovery of all the G7 countries in both 2021 and 2022, the UK 2022 annual GDP was 0.345% less than the record level of 2019. (Ref. 3A )
According to the World Bank UK annual GDP rose to its highest level in history in 2021 reaching $3.13 trillion (current US$) beating the previous highest level of $3.1 trillion achieved in 2008. The WB have not yet published an annual GDP figure for 2022. (Ref. 3B)
UK Corporate profits increased strongly following Brexit as business recovered from the pandemic up until the start of 2022, when they went into decline due to the effects off the war in Ukraine and increasing fuel prices from mid 2021. (Ref. 4) Gross national income maintained its steady rise as the country gets wealthier driven largely by corporate profits. (Ref. 5)
Manufacturing
Brexit has been blamed for a decline in manufacturing, but the reality is manufacturing peaked in 2007 and has been in decline since well before Brexit occurred. In fact, as a percentage of GDP manufacturing has been in decline during virtually the whole of the time the UK has been a member of the EU. Manufacturing output increased markedly after the UK left the EU in 2021, returning to pre referendum level. (Ref. 6)
A combination of inflation, reduced spending power, the closure of the Honda factory in 2021, and shortages such as microchips has adversely impacted UK car production by 10% in 2022. It is pleasing to see, however, that UK car factories turned out a record 234,066 battery electric, plug-in hybrid, and hybrid electric vehicles, with combined volumes up 4.5 per cent year-on-year to represent almost a third (30.2% ) of all car production. In addition the production of commercial vehicles increased by over 39%. (Ref. 7)
Honda produced circa 10% of UK car production and moved their UK production back to Japan in 2021. Nissan moved to the top of the UK car production makers for the first time, above Tata. The Nissan Qashqai model secured top spot with 42,704 sales in 2022; the first British-built UK best-seller since 1998. Toyota succeeded in setting new records in its UK new car sales during 2022, placing it third largest UK vehicle manufacturer, its highest placing ever, with a record 6.61 per cent market share. Nissan and Toyota have clearly stepped into the gap in the market created by Honda leaving. Local luxury car manufacturer Bentley achieved record sales in 2022 selling over 15,000 cars. Rival luxury car manufacturer Rolls Royce also achieved record sales in 2002 for the second successive year by selling over 6,000 cars.
Total new car registrations in the UK in 2022 were roughly the same as the previous two years but the year was "a game of two halves" as sales slumped badly in the first 6 months and recovered in the second half year. Compared with pre-pandemic 2019, UK 2022 car sales were down 30%; new car registrations in Germany were down 26% in 2022 compared with 2019, 31% in France, and 32% in Italy. I conclude that reduced car sales in the UK was due to common worldwide effects and not Brexit.
Whilst the automotive sector and manufacturing generally continues to struggle the impacts of the pandemic and the war in Ukraine, 70% of engineers working in UK manufacturing recently reported that business has returned to, or even exceeded, pre-pandemic production volumes. Businesses in the aerospace, electronics and energy sectors all point to a substantial recovery with 72%, 59% and 71% of respondents respectively reporting a return to pre-pandemic production levels. (Ref. 8) 2022 has been an extremely difficult year though with crippling energy costs, particularly in high energy industries like steel, cement, and our own ceramics, nevertheless reshoring has continued. To date 40 per cent of reshoring has been returning from China, over 30 per cent from Eastern Europe and almost 20 per cent returning from India. This is being driven by disruption of supply chains due to the pandemic and the UK leaving the EU. According to the ONS manufacturing employment increased by c.84,000 in 2022.
Construction
UK construction rose to an all time record value in 2022 and the first time over £200 billion. (Ref. 9) The ONS reported that new work and repair and maintenance rose by 3.8% and 8.5%, respectively. After 2021's record increase after the pandemic, 2022's increase in construction
"is the strongest annual growth for repair and maintenance since records began. "
House building starts have continued to increase since the 2008 financial crisis. House starts have recovered quickly post pandemic during the first 2 years of Brexit. These levels of expenditure have been achieved both because of and despite high inflation of building materials and high inflation in 2022.
Despite a slow down in the fourth quarter, the Build to Rent construction sector achieved a record year in 2022, achieving £4.3bn of investment, a fourth consecutive record-breaking year. One very lucrative line is building accommodation for the record number of foreign students coming to the UK to study. In the academic year 2021-22 there were 679,970 international students studying in the UK, a 12% increase on 2020/21, when around 605,000 international students were studying in British higher education institutions. The 2030 target of 600,000 was achieved a decade early despite concerns about immigration, Brexit, and the pandemic. The issue of foreign students has changed from worries about a shortage to an issue of how to accommodate them and the high cost of rents.
Services Industry
Whilst attention often focuses on traditional industries like house building and car production, the UK economy is essentially a service industry, accounting for 79% of total UK economic output and 82% of employment.
The services industry was severely impacted by the pandemic, particularly those so called consumer facing services, namely retail trade, accommodation, food and beverage serving activities, travel and transport, and entertainment and recreation . The consumer facing services fell by almost a half during the worst of the pandemic and is still 8.9% below pre-pandemic levels. Only in this January has travel got back to pre-pandemic levels, but inflation is hitting household budgets inhibiting spending on hospitality and entertainment.
There are however parts of the UK service industry that continued to perform well in 2022. KPMG UK for example delivered double digit growth for the second consecutive year, recording a 16% rise in revenue from £2.35bn to £2.72bn, with profit before tax increasing from £436m to £449m. following a record level of investment. (Ref. 10) The British Film Institute reported significant growth in UK film and high-end TV production during 2022 with combined spend on production reaching £6.27 billion, the highest ever reported and £1.83 billion higher than for the pre-pandemic year 2019.
A2 Employment
For the first time in history UK pay-rolled employment reached a record 30 million in January 2023. (Ref. 11)
Payroll employment has increased by over 2 million since the referendum in 2016, despite the huge drop during the pandemic. In October the government announced there is a record >1.2 million full-time equivalent staff working in NHS trusts and other health groups in England, an increase of over 31,000 more people compared to the previous year.
In 2022 there were 267,670 work permits issued. (Ref. 12) almost double that of 2019. There are 45,000 visas available in horticulture businesses in 2023, an increase of 15,000 on 2022..
It is now the policy to change practice according to need by issuing visas/permits according to need. We had a shortage of turkey farm workers in 2021 and there were wild rumours there would not be enough turkeys for Christmas 2021. The government acted and allowed temporary workers in to address the problem and by Christmas 2021 supermarkets were offering turkeys at reduced prices. 2,000 work visas are now issued to the poultry industry each year and despite the fact that the UK lost 40% of the 1.4 million free range turkeys due to the avian flu from October 2022, according to the British Poultry Council, there was no shortage last Christmas.
The number of non-UK nationals working in the UK was estimated to be around 3.96 million, last September, 272,000 higher (+7%) than the previous year. The number of non-EU nationals coming to the UK to work exceeds the drop in the number of EU nationals coming to the UK since 2016.
Whilst payroll employment has been growing across the board since the pandemic (Ref. 13) total employment in the UK, however, has not returned to the pre-pandemic level. This is due to three factors; firstly many over 50s have chosen to be economically inactive and not return to full time work after the pandemic. Secondly the UK like many other countries has a huge health issue with many unable to work. The number of working-age adults who are out of the labour market because of long-term sickness has risen from around 2.0 million people in spring 2019, to about 2.5 million in summer 2022. (Ref. 14) Mental illness has become an increasing problem (Ref. 15). Time off work due to ill health etc. is normally better in the UK than in Europe. (Ref. 16)
A third factor affecting the reduced UK working population is a record number of young people are choosing to stay in full time education. (Ref. 17) UCAS end of cycle data for 2022, published in December, shows record number of 32,420 18-year-olds from the most disadvantaged areas in the UK (POLAR4 quintile 1) have been accepted onto a course, more than ever before. In post Brexit Britain, the participation in higher education has risen above 50% and is the highest in UK history. We are entering a more educated age in British history where the majority of young people will have the benefit of further education.
The consequence of these impacts leading to high levels of economic inactivity in the UK population is that UK GDP is recovering more slowly from the pandemic than otherwise would be the case. This impacts the UK more significantly than most other countries as they measure the output of their public services, such as health and education, based on the costs. In the UK public services are accounted for differently, by valuing the services delivered. For example the ONS report for December stated that the largest fall in GDP that month was in services and one of the prime reasons was
"fewer GP appointments and operations, partly because of the impact of strikes. A second consecutive fall was seen in the NHS Test and Trace and vaccine programmes, especially vaccination activity." (Ref. 18)
Earnings Growth
Earnings Growth December 2022 (Ref. 19)
G7: US 6.95%, UK 5.9%, Japan 4.8%, Canada 3.4%, Germany 3.2%, Italy 1.5%, France 0.6%
Other countries: Netherlands 3.8%, Euro zone n/a, EU n/a, Spain n/a
Following the 2008 recession the UK average wage growth was around 2% pa. From 2017, apart from during the pandemic, UK wage growth has improved and since the pandemic increased to c. 6% pa. (Ref. 20) The increase in UK median annual earnings for full-time employees rose to £33,000 pa with the largest increase this century in 2022. (Ref. 21)
It is little wonder that Tim Martin of Witherspoon is complaining about Brexit; hospitality workers have enjoyed the fastest rising wages in the UK during the past decade, with average weekly earnings jumping 23% in 2022. (Ref. 22) Another group of workers who have enjoyed a pay boost have been HGV drivers. The government have now closed the HGV driver seasonal work visa scheme, which had minimal take up in 2022.
The financial services sector enjoyed a record breaking year for financial services jobs in England and Wales in 2022. A recent review found there has been a 27% increase in the number of jobs on 2021. (Ref. 23)
Real Wage Growth, i.e. Earnings Growth - Inflation rate December 2022
G7: Japan 0.8%, US 0.45%, Canada -2.9%, UK -4.6% %, France -5.3%, Germany -5.4%, Italy -10.1%
Other countries: Netherlands -5.8%
The high UK inflation negated the UK having the second highest wage growth in the G7 in 2022, nevertheless the UK real wage growth is still higher than most of the EU.
Japan heads the above list but has not increased wages in real terms for over 30 years. It is small wonder than Honda moved production back to Japan, Japan having secured a free trade agreement with the EU. (Ref. 24)
A3. Unemployment December 2022 (Ref. 25)
G7: Japan 2.5%, US 3.5 %, UK 3.7%, Canada 5%, Germany 5.5%, France 7.2%, Italy 7.8%
Other countries: Netherlands 3.5%, EU 6.1%, Euro area 6.6%, Spain 12.87%
UK unemployment continues to be at its lowest level for over four decades. (Ref. 26)
A4 Inflation December 2022 (Ref. 27)
G7: Japan 4%, France 5.9%, Canada 6.3%, US 6.5%, Germany 8.6%, UK 10.5%. Italy 11.6%
Other countries: Euro area 9.2%, Netherlands 9.6%, EU 10.4%, Sweden 12.3%
UK inflation in 2022 was the second highest in the G7 after Italy and almost the same as the EU mean value, and slightly higher than the Euro zone mean value.
Food inflation rates December 2022 (Ref. 28):
G7: Japan 7%, Canada 10.1%, US 10.4%, France 12.1%, Italy 13.1%, UK 16.8%, Germany 20.7%
Other countries: Euro area 16%, EU 17.82%, Netherlands 16.8%, Sweden 18.24%
UK food inflation in 2022 was the second highest in the G7 after Germany and lower than the EU average.
World food prices rose by 14.3%, their highest level on record for the full year in 2022 according to the UN. The world prices of maize were 24.8% higher on average in 2022 than in 2021
At 16.8% UK food inflation was only marginally (i.e. <2%) higher than Austria (15.2%), Belgium (15.16%), Denmark (15.3%), Spain (15.33%), and the Euro zone (16%) at the end of 2022.
A5 Trade
UK trade was at all time record levels in 2022 totalling £1,711 bn, 28% higher than 2021, largely driven by inflation, particularly energy and food costs. (Ref. 29)
UK goods exports in 2022 were an all time record of over £415 billion, which is over 14% higher than the previous record goods exports in 2019. (Ref. 30)
UK goods exports to the EU were also an all time record of over £194 billion, which is over 12% higher than the previous record goods exports to the EU in 2018. Growth is largely attributable to inflation but nevertheless, it is not the collapse in goods exports to the EU that those opposed to Brexit predicted.
Whilst UK GDP may have been adversely impacted by the slow recovery of services post pandemic and by inflation due to the war in Ukraine, UK export services have, on the contrary, surged ahead post pandemic to record levels. (Ref. 31) 2022 services exports were at a provisional record level of £397 billion in 2022, a 20% annual increase at current prices according to the ONS and 18% higher than the previous record year 2019. (Ref. 32)
2022 saw a substantial rise in food and drink exports, with most categories now exceeding pre-pandemic levels to reach a record £24.8bn. The Food & Drink Federation reported
"Exports to Europe rose 22% to £13.7bn* and developing markets did well too, with fast-growing economies like Vietnam nearly doubling. For the very first time, exports to non-EU markets have broken through the £10bn barrier, hitting £11.1bn. " *just short of 2019's record £13.8bn. (Ref. 33)
Aircraft and spacecraft and related parts exports returned to the pre pandemic level at the end of 2022. (Ref. 34) We can look forward to increased growth in the years ahead following Air India's order for 250 Airbus jets. (Ref. 35)
Trade with the UK's largest trading partner the US increased by over a fifth in the four quarters to the end of Q3 2022 to a record £263 bn, with exports increasing by a fifth to a record £161 bn well in excess of the 2021 annual exports to the US of £141 bn.
Trade with Japan
In November parts of the anti Brexit media claimed that the first major free trade agreement signed by Britain after Brexit has been branded a failure. It is at first easy to dismiss such journalism as ignorant, but it is actually scurrilous. It is government's role to negotiate trade deals and then facilitate trade by means of advice, trade fairs and missions, financial assurance, etc., but not to actually engage in trade, that is the role of business and commerce. Business takes time to build up activity, particularly exports, and particularly in the economic stormy world we have experienced during the last three years. Japan's economy has struggled like other nation's.
But what are the facts? Reference 36 shows that the UK's exports to Japan have recovered strongly in the second half of 2022 to pre pandemic levels. This is actually an improved performance in relative terms as Japan's economy has still not recovered to its pre-pandemic annual GDP level (Ref. 37) or indeed Japan's peak GDP peak level a decade ago. Tokyo fell to 16th place in the GFI due, it is suggested, to Japan's comparatively slow consumer recovery following the pandemic due to the Japanese government's caution in relaxing lockdown controls.
If the government's factsheet for trade and development with Japan (Ref. 38) is consulted, it can be seen that total UK exports to Japan amounted to £13.5 billion, in current prices, in the four quarters to the end of Q3 2022. That is an increase exports on the 2021 annual figure (£13.1b) which was the highest annual figure on record. The anti Brexit media highlight that trade is lower, but that is because UK imports from Japan are lower (possibly due to stopping imports of parts for the Honda Swindon factory now closed?). Imports from Japan have been so much lower in fact that for the first time the UK achieved a positive trade balance with the Japan in 2021. I am not claiming that the new trade deal with Japan is responsible for record exports as it is far too soon to see benefits in trade from recent agreements, that will take years to accrue. It is clear though that the claim that the UK-Japan trade agreement is a failure is nonsense.
In December the UK and Japan agreed a none legally binding partnership to share best practice on digital policy and practice. (Ref. 39)
In October the UK government exercised its increased sovereignty by creating potential export markets worth over £100 million by removing trade barriers that deterred alcohol sales to multiple countries across South America and Africa. (Ref. 40)
This was followed by an agreement with Nigeria to deepen trade policy cooperation to support Nigerian and British businesses. (Ref. 41) The UK reaffirmed commitment to strengthen and deepen its relationship with Nigeria, the largest economy in Africa. Both sides confirmed their shared interest in pursuing a potential Enhanced Trade and Investment Partnership at the eighth and final UK-Nigeria Economic Development Forum in Abuja last November.
In November UK Export Finance announced that up to £4bn is available for Moroccan buyers for projects in the region, provided at least 20% of the content is sourced from UK businesses. (Ref. 42)
Post Brexit the UK is gradually reducing trade barriers with the rest of the world, with which it does most of its trade, whilst still enjoying record trade with the EU.
A6 Finance
Investment
UK gross fixed capital formation in 2022 increased to an all time record of well over £400 billion, (Ref. 43) and is recovering faster that from the pandemic recession than it did following the 2008 financial crisis recession. This is totally at odds with anti Brexit forecasts that Brexit would damage investment in the UK. As a percentage of GDP, GFCF reached 18.7% in 2022, the highest level since before the 2008 financial crisis. UK performance compares well with Germany where GFCF has not yet returned to pre-pandemic levels.
UK business investment recovery is lagging GFCF, which is usual after a recession, especially with the war in Ukraine and rampant inflation, and has still to recover to pre-pandemic levels. Nevertheless, as a percentage of GDP, at 10.2%, business investment is recovering well and higher than the last post recession years from 2009 to 2014. (Ref. 44)
On 23rd January the ONS released data for foreign direct investment for the latest full year's data for 2021. The data showed that in the first year of Brexit inward FDI exceeded the £2 trillion for the first time ever. (Ref. 45) The inward FDI has increased every year since the referendum in 2016 since when it has increased by two thirds, totally repudiating the claim that Brexit would reduce foreign investment in the UK by organisations like the UCL and LSE (Ref. 46)
Whilst it is true FDI from the EU has declined by circa £20 billion in 2021, that was dwarfed by £127 billion increase from other countries, including c.£90bn from the Americas. At £685bn the 2021 inward investment from the EU countries was still higher than 2018 and 2019. UK inward investment from the Americas has increased from £571bn in 2018 to £849bn in 2021. (Ref. 45)
During 2022, fast-growing UK tech companies have continued to attract investment at near-record levels (£24 billion), more than France (£11.8bn) and Germany (£9.1bn) combined. This takes the total raised over the past five years to £97 billion.
The UK has more high-growth companies than European peers having created 144 unicorns and 237 futurecorns and over 85,000 start-ups and scale-ups, as well as more venture capital investment than European peers. (Ref. 47)
UK tech industry reached the $1 trillion in value during 2022, making it only the third country ever to hit this valuation after the US and China. The UK tech industry is ahead of its European peers and is worth more than double Germany’s ($467.2 billion) and three times more than France’s ($307.5 billion) as well as retaining the lead when it comes to overall funding, unicorns and start-ups numbers. (Ref. 48) Amazingly the UK has received 35% of all European tech investment since the referendum.
Britain remains one of the world’s most attractive destinations for listings and initial public offerings. In 2022, London was ranked the second-best start-up hub in the world with a value of $314bn, second only to Silicon Valley. (Ref. 49)
The London FTSE100 was the only major stock exchange in the world to deliver a gain for investors in 2022, thereby beating its rivals as the world’s best-performing major stock market. Only the exchanges of Brazil, India, and Indonesia delivered better returns than London's FTSE100.
The UK retained its title in 2022 as one of the top fintech centres for start-up funding. The first six months of 2022 saw the UK fintechs securing $8.4billion, while the second half drew in only a fraction of this figure at $2.8billion. This decline is attributed to war in Ukraine, which has ultimately increased the cost of energy while triggering an economic downturn as a result. UK’s fintech sector outperformed the US, China, and India. (Ref. 50) There was a worldwide drop in fintech investment in 2022 of 30%, but the UK's reduction was only 8%. UK fintech is still receiving more investment than all of the next 10 European countries combined and remains second in the world only to the US. (Ref. 51)
Despite the bad press regarding UK governance in 2022 with three PMs and innumerable minister sackings and resignations, the UK retained 5th place in foreign direct investment confidence index, behind the US, Germany, Canada, and Japan. (Ref. 52)
2022 was another record year for company registrations in the UK with 784,762 businesses registered at Companies House, almost 30,000 more than in 2021. It is 114,000 more than the 670,575 businesses that were registered pre-pandemic in 2019. (Ref. 53) Record start-ups however comes with a "health warning", namely most new companies fail in their first few years, so record start-ups will inevitably be followed by record business failures. With businesses struggling due to the impact of the war in Ukraine such as inflation, the rate of business failures is bound to increase. The media say little about good news but we can expect the anti Brexit press to blame Brexit for record business failures.
In November it was announced that Britain’s first lithium refinery is to be built on Teesside in an effort to boost the UK’s electric car supply chain despite uncertainty over the future of the industry.
Green Lithium, which is backed by the Singapore based commodities trading giant Trafigura, will build a > £0.5billion refinery for the battery material at PD Ports Teesport, the UK’s fifth-largest port. The project is expected to create 1,000 jobs during the construction phase and 250 jobs long term, and produce 50,000 tonnes pa., enough lithium hydroxide for 1m electric vehicles each year, when the plant is completed in 2026. The production of lithium is traditionally highly polluting but Green Lithium have said the refining process at Teesside will have a carbon footprint
“80% lower than the traditional processes currently used internationally” and use renewable energy. The plant will receive £600k government backing. (Ref. 54)
The south-east of England, including London, was judged as best-of-class in Europe in fDi Intelligence’s flagship European Cities and Regions of the Future 2022/23 ranking. (Ref. 55)
London retained its second spot in the world financial centre rankings throughout 2022 in the Z/Yen’s 32nd and 33rd Global Financial Centres Index. London is the only financial centre in Europe in the world top ten. Of the other European financial centres, Paris came 14th, Amsterdam 16th and Frankfurt 17th. Amsterdam rose three places on the last survey (33rd) and Frankfurt rose one. Paris fell four places. The fact that the EU has three centres in the second ten places, whereas China has four in the top ten demonstrates the shift in world economic power to the Indo-Pacific region. (Ref. 56)
In December Ford announced it is to make a major investment of circa £150m in its Halewood factory to make electric vehicle components. The investment will increase capacity at Ford’s Halewood transmission plant by 70% to 420,000 electric power units per year for future Ford all-electric passenger and commercial vehicles in Europe. Halewood will be Ford’s first electric vehicle component in-house assembly site in Europe, with production beginning in 2024 – with the move safeguarding hundreds of jobs. (Ref. 57)
It was also announced in December that a new global research fund to deepen scientific collaboration between the UK and international R&D powers like Japan will be opened with an initial £119 million in UK Government funding. (Ref. 58)
In January this year, UK Export Finance, the United Kingdom’s export credit agency, and Hassan Allam Holding, one of the largest engineering, construction, investment and development companies in Egypt and the Middle East & North Africa region, signed a Memorandum of Understanding to increase cooperation in a number of projects across Africa, and. secure inward investment into the UK and to promote cooperation on financing projects and encourage trade between the UK and Africa as a whole.
In December the Department for Transport published its railway plan in England and Wales for the period of April 2024 to March 2029 committing to a budget of £44 billion pounds over the five year period. I have posted regular updates on the HS2 project in these Brexit reviews and posters have debated the merits of the project. A major spin off of the HS2 project is the Arden Cross £3.2bn mixed-use scheme to build 3,000 new homes, create up to 6 million sq ft of employment space and generate around 27,000 new jobs at a 346 acre site owned by landowners Birmingham City Council, Packington Estate and Coleshill Estate. A number of other potential projects at the site are being explored including a Medical & Technology Campus to deliver ‘world-beating innovation’ in the healthcare and technology sectors.
Incidentally, it was announced in May by The Office of Rail and Road that Britain’s railway remains one of the safest in Europe, ranking first for ‘whole society’ safety risk.
I have posted previously that Dutch agriculture businesses are investing in vertical farming in the UK. It is also now the case that French wine growers are investing in the UK. Pommery, responsible for creating Brut Champagne in the 1870s, was the first French Champagne house to plant vines in England. They have purchased 40 hectares of land at Pinglestone, near Alresford, in Hampshire. In Chilham, near Canterbury in Kent, Pierre Emmanuel Taittinger, the former president of Champagne Taittinger, and Patrick McGrath, managing director of import company Hatch Mansfield, have started a vineyard. 2022 is expected to have been a record year for the UK wine industry.
A7
Summary of UK Economic Performance in 2022.
A7.1 Major Occurrences:
The UK achieved the largest % increase in GDP of the G7 nations (Ref. 1)
The UK achieved a higher % increase in GDP than the EU and Euro zone (Ref. 1)
UK payroll employment has reached its highest ever level in history, exceeding 30 million. (Ref. 11)
Wage increases have tripled since before the 2016 referendum from c. 2% pa to 6% pa.. (Ref. 19)
Unemployment has dropped to the lowest level since 1973. (Ref. 26)
Trade is at record levels. (Ref. 29)
Gross fixed capital formation at an all time record level. (Ref. 43)
A7.2 Other Significant Occurrences:
For every G7 country economic parameter in 2022 posted in A1 to A5 above the UK has not been the worst in any. In fact the UK has performed at least as well if not better than the medial G7 performance throughout 2022.
The UK annual GDP recovered to virtually the same level as 2019 the highest in history. (Ref. 3)
UK earnings growth was the second highest in the G7 after the US.
UK real wage growth was higher than the EU G7 countries.
A7.3 Undesirable Occurrences
The one area the UK has not performed well, namely inflation, has only been marginally worse than the median rate of EU countries. Some anti Brexit commentators have tried to blame the UK's high inflation on Brexit, but it is UK government's policy to let energy prices rise, within limits, to motivate reduced consumption. Most other European countries have done far more than the UK government to help consumers such as capping energy costs far sooner in France, reducing fuel tax far more in Germany, assistance with travel, etc. Consequently UK consumers face the highest price for power, a major driver of inflation, because of government policy not Brexit. (Ref. 59) UK inflation has also not been helped by having higher wage increases than most other countries.
Whilst achieving a greater increase in GDP than most other leading economies in the world in both 2021 and 2022, the UK GDP still has to get back to the October 2019 level. This is due to the UK suffering one of the most severe impacts due to the pandemic as a consequence of being largely a service economy, and services being slower to recover from he pandemic than other sectors of the economy due to economic inactivity of much of the UK population. Manufacturing has obviously been impacted by the effect of Brexit on supply chains but recovered quickly from the impact of the pandemic (Ref. 6) and is now more adversely impacted by inflation due to the war in Ukraine.
B
Change Enactment
B1 Legislation
I do not subscribe to the view by some that there should be a bonfire of EU regulations now the UK has left the EU. Much of the law is good law. I am concerned that there is a lack of urgency and slow progress in implementing new legislation, although I do accept that the great many changes in government ministers, the pandemic, and war in Ukraine will have caused severe disruption to plans, particularly those involving significant expenditure. There is a need to press on with those issues that the UK should legislate on now we are out of the EU such as tighter legislation on the export and import of live animals, and importation of shark fins, fur, and foie gras.
The prime reason for leaving the EU was to re-establish the sovereignty of parliament. There are over a quarter of a million EU laws, judgements, directives, regulations, and decisions, so it will take many years to unravel those to re-establish what is best for the UK. At least we can comfort ourselves with the thought that since the UK left the EU there have been many thousands of new EU laws, judgements, directives, regulations, and decisions that don't apply to Britain. None of those EU enactments have been voted on by the parliaments of any EU country.
B2 Financial Policy
The UK subsidy control regime began on 4 January 2023 which replaces the state aid rules that applied in the UK prior to Brexit. It enables public authorities, including devolved administrations and local authorities, to give subsidies that are tailored to their local needs, and that drive economic growth while minimising distortion to UK competition and protecting our international obligations. (Ref. 60)
B3 Defence
Although there were changes in PM, there was consistency in support of Ukraine's struggle against Russia with the UK one of the leading nations lending support.
During 2022 meetings of the Defence Ministers and senior representatives of the Joint Expeditionary Force (JEF) were held at Belvoir Castle and Edinburgh committing to support Ukraine. The JEF comprises of Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, the Netherlands, Norway, Sweden and the United Kingdom. (Ref. 61)
In October the UK and 14 other European countries announced that they would jointly procure air defence systems to protect the continent under a newly-created European Sky Shield Initiative. (Ref. 62)
The UK remained the major defence country in Europe in 2022 spending almost $7bn more than Germany, which has an economy 44% larger than the UK’s, and over $15bn more than France. In terms of expenditure relative to GDP, the UK was fifth largest at 2.12% behind Greece, Poland, Lithuania, and Estonia. In March 2022, Greece ordered three Belharra navy frigates and six additional Rafale fighter jets from France to boost its armed forces in response to tension with neighbouring Turkey. That is the same Turkey that the EU allocated an additional €325 million on 2nd December 2021 to extend the Emergency Social Safety Net programme until early 2023. Since Russia first invaded Ukraine in the Crimea eight years ago, the UK is the only major European economy to meet its NATO target of 2% GDP, which France, Germany, Italy, the Netherlands, and Spain have all consistently failed to do.
In December the UK, Italy and Japan agreed to develop a new fighter jet that uses artificial intelligence. The the joint venture aims to create thousands of UK jobs and strengthen security ties.
On January 11th this year, Japan and the UK signed an agreement allowing UK forces to be deployed to Japan in the most significant defence agreement between the two countries in more than a century. The UK is the second country, after Australia, to sign the Reciprocal Access Agreement with Japan. (Ref. 63)
B4 Farming and Fishing
The World Wildlife Fund believe that UK is one of the most nature depleted countries in the world with more than one in seven native species face extinction and more than 40% are in decline. WWF believe this is not due to industrial pollution which has declined massively with the loss of heavy industry, but due to the EU CAP policies since the 1970s encouraging intensive farming and less habitat for native wildlife. (Ref. 64)
This view is shared not only by other environmental pressure groups but also The Royal Society who have stated
"The main direct cause of biodiversity loss is land use change primarily for large-scale food production". (Ref. 65) Human sewage entering the waterways is the highly emotive topic that makes the headlines, but it is waste from chicken farms, fertilisers/nutrients, and insecticides/pesticides that cause most pollution of rivers in the UK and throughout the EU.
In his latest TV series Sir David Attenborough has called on the UK to
"act now" to save wildlife and the natural environment, warning that the country is one of the most nature depleted in the world. Half a century of EU membership has brought us to the situation where Britain is in the bottom 10% of countries globally for protecting nature. 38 million birds have disappeared from Britain in the last 50 years, 97% of our wild flower meadows have been lost since the 1930s, half our ancient woodland, and one in four of our mammal species are now at risk of extinction. The BBC has decided not to broadcast an episode of Sir David Attenborough’s series on British wildlife because of fears its themes of the destruction of nature would risk a backlash from Tory politicians and the right-wing press.
We are now entering the third year of the Agriculture Act which phases out the EU CAP by 2028. This year the Farming Equipment and Technology Fund will start which will provide grants for specific items of equipment to increase productivity, boost environmental sustainability and improve animal health and welfare. (Ref. 66) On 5th January this year DEFRA announced that farmers will receive increased payments for protecting and enhancing nature and delivering sustainable food production under the Government’s Environmental Land Management schemes. With the CAP subsidy system based on acreage, whereby the richest farmers get the largest part of the funding, we can expect a lot of squealing from rich influential people and alarmist statements about food shortages, but we have a choice between going without tomatoes and cucumbers occasionally or losing our nature. Last month the government issued an ELM update on how it will pay for land-based environment and climate goods and services.
At the end of last year the UK government concluded an agreement with Norway on mutual access to each others waters, which will allow respective fleets more flexibility to target the stocks in the best condition throughout the fishing year, thereby supporting a more sustainable and economically viable fishing industry. The UK fishing industry will gain access to 30,000 tonnes of white fish stocks, such as cod, haddock and hake, in the North Sea, providing a boost to the UK fishing industry in 2023. A new trade deal will be worth over £200m (£128 million to Scotland) in 2023, an increase of over £30m on last year. (Ref. 67)
The UK government also secured an increase in fishing quota of 30,000 tonnes for 2023 with the EU (Ref. 68) as a result of fish stocks being better managed.
B5 Environmental
At COP26 in Glasgow, all countries agreed to “revisit and strengthen” their 2030 climate plans, but by 23rd September, the cut-off date for inclusion in a UN Climate Change progress report to COP27 held in Egypt in November, only 23 out of nearly 200 nations, including the UK had reported. Out of the G20 group of 20 world's richest nations only the United Kingdom, Australia, Indonesia, India, Brazil and Korea made submissions. So where is the EU on climate change? The primary reason cited for lack of progress on improving targets was the Russian invasion of Ukraine which sent energy markets into turmoil. For example, Germany imported 44.4 million tons of coal last year, an 8% increase from 2021; forced to revive its use of coal for generating electricity due to the German government's decision to stop relying on Russian oil and gas following Russia's invasion.
UK wind generation achieved a new record on 26 October with 19.936GW, but it is not known how much of this was actually distributed due to constraints of the distribution network. Three major offshore wind projects went fully operational in 2022, adding 3193 MW of new capacity, a record annual increase, exceeding the previous record of 2,125MW set in 2018 by an amazing 50%.
As a consequence of all this investment renewable power generated 40% of Britain’s electricity needs in 2022 (2021: 35%) and set a new all-time high annual share of power generated from wind in 2022 of 28% (2021: 23%). UK coal consumption fell to 6.2 m tonnes in 2022, the lowest level since 1757!
The UK was ranked 11th in the 2023 Climate Change Performance Index, which is effectively 8th as the top 3 spots are not allocated. The UK is highest of any of the G7 countries with the next highest being Germany in 16th place.
In November Rolls Royce announced it is considering four sites for its small modular nuclear reactors; near the Sellafield nuclear site in Cumbria, Oldbury in South Gloucestershire, and the Welsh locations Trawsfynydd and Wylfa in Anglesey.
Another announcement in November was by Water UK who stated that the number of English bathing waters classed as ‘excellent’ has risen again to a record 72.1% according to the latest data from the Environment Agency. The new statistics show that in 2022, 92.8% bathing water were classified as ‘good’ or ‘excellent’, while virtually all (97.1%) passed the Environment Agency’s stringent water quality tests.
Also in November the government announced additional new measures to assist people to insulate their homes and reduce consumption. (Ref. 69)
C
Concluding Remarks
As the UK enters the third year of Brexit and a new Carolean Age, the UK continues to play a world leading role as the third most influential country in the world. (Ref. 70) Sections B3, B4, and B5 above confirm that although the UK has left the EU, the UK still plays a leading role in European and world affairs and is far from isolationist.
There is a view that the UK is historically the most influential country in the world (Ref. 71) and, although this may have declined since the empire days, it is still very much the case through inventions and innovation, education, popular culture, sport, financial services and technology, literature, television, animal welfare, contemporary architecture, and playing a world leading role in peace and climate change, etc.
The UK retained its position as a global soft power superpower by retaining second place in the recently announced Global Soft Power Index 2023. (Ref. 72) This surprises even me with the UK having left the EU; does it infer that UK membership of the EU contributed little to UK's worldwide influence? The result does show that the UK still holds great influence through the Commonwealth, which has a population of over 2.6 billion, the "special relationship" with the world's most powerful and influential country the United States, and through that very British institution the BBC which according to the 2021 Global Audience Measure reaches a record world audience of 489 million.
Resonance announced: London is the "capital of capitals". (Ref. 73)
"London has been anointed the best city in the world for the seventh year in a row. The ‘capital of capitals’ has taken the top spot despite concerns surrounding the city’s post-Brexit future. However, the report’s authors believe the city continues to draw talent and visitors en masse and will eventually weather the storm and even emerge stronger." (Ref. 74)
An example of how London leads the world is museums. The Natural History Museum announced recently that is had over 4.65 million visitors in 2022. That does not make the NHM the most visited museum in the world; that spot usually goes to the Louvre in Paris, with the National Museum of China in Beijing second, and the Vatican Museum third. However, four of the world's top ten most visited museums are in London exemplifying the UK capital's world leading position.
Of course there are many views on which city is the best in the world depending on your criteria.
On the Schroders Global Cities Index, London was ranked third; but then 4 of the top 7 ranked countries are American, London being ranked the top non-American city in the world. Time Out place Edinburgh top and Glasgow fourth out of 53 world cities, according to its residents. Their pride in their cities is a great complement to Scotland. (Ref. 75)
The UK continues to be very high in the world standings, although according to US News the UK is only the eighth best country in the world because we are not
"sexy" and it rains a lot. (Ref. 76)
Last September the UK was ranked 5th out of 30 countries examined for human-centred public services, (Ref. 77)
Clearly the UK ought to be a fairer country than we are with greater income equality but 15th best in the world (out of 85 nations) isn't too bad, just not good enough. (Ref. 78) UK wealth inequality was falling for most of the 20th century until the UK joined the EEC as shown in Figure 1 in reference 79. Certainly being in Europe has done nothing for UK inequality during the last half century, if anything the capitalist interests that dominate Brussels have seen inequality get worse. Hopefully, now we have taken back control, future UK governments accountable to the British people can reverse the trend and re-establish the reduction in inequality that was happening before the UK membership of the EEC/EU.
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
Appendix 2
It should be noted that whilst quarterly data is significantly more accurate than monthly data, it is still subject to correction for errors and assumptions, particularly those in the last month of the quarter, and therefore less accurate than annual or year to date figures, such as inflation rate. It is due to inherent inaccuracy that many countries do not issue monthly statistics for many parameters, or they issue them a long time after the period, notably Japan. Where monthly statistics are reported on sites such as tradingeconomics they also report the previous month's result as it is very often a correction on what was issued the previous month. These corrections are invariably something the media fail to pick up on as they are "old news".
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