Economic context, trends and why trade matters

brexit-fact-base-london — Photo by is1003/Shutterstock

Economic context of the UK in 2025 was that it ranked globally:
- 5th in nominal terms
- 10th by relative purchasing power
- 20th in output per capita (14th in Europe)
- more unequal than all other European economies, save Turkey and Bulgaria
Trade plays a critical role in the open UK economy
80% of UK economy is devoted to services; 10% to manufacturing
- despite this, manufacturing provided 44% of UK exports in 2025
UK economy has recovered to pre-pandemic levels but:
- since referendum, £ has weakened against $ and €
- Brexit trade barriers mean UK’s trade openness has declined
- services sector output has grown faster than manufacturing
UK has high employment but low labour productivity:
- real wage levels in 2024 were still below levels before the global financial crisis
- productivity growth slowed after the crisis of 2007/8
Brexit has hindered UK economy significantly
- OBR has estimated the long-run impact as 4% of GDP for some time:
  - equivalent to £120 billion based on 2025 GDP of £3.0 trillion
  - reduced tax revenues by about £46 billion a year
- Other reputable economists find a higher GDP impact of up to 8%:
  - 5-6% (National Institute for Economic and Social Research, 2023)
  - 8% (Goldman Sachs, 2024)
  - 6-8% (National Bureau of Economic Research, 2025)
  - most of which has already happened
Main economic impacts of Brexit are:
- reduced productivity
- lower exports and imports, by around 15%
- weaker business investment by 12% to 13%
- labour shortages from reduced EU immigration
- positive economic effects from:
  - higher non-EU immigration
  - trade deals with non-EU countries, but impact is immaterial