Brexit, Revisited

On January 31, 2020, the UK officially withdrew from the European Union (EU). Five years later, how have the many forecasts—some rosy, most dire—played out? Overall, Brexit hasn’t been as disastrous or desirable as many feared and some hoped—an outcome with useful lessons for investors.

As always, our commentary focuses on politics’ economic and market fallout, but Brexit affected more than just economic ties with the EU. The change also had consequences for immigration, travel, law—even fashion. Upon Brexiting, the UK fashion industry worried a lack of clarity over short-term work visas could discourage designers from attending London Fashion Week.^[i] It was a major change requiring many, many adjustments.

And inspiring a litany of opinions and views—including economic projections. Some veered toward optimism. Exiting allegedly meant getting out of the EU’s regulatory web, widely seen as stymieing growth. Leaving also opened the prospect of signing free trade deals—including with the world’ biggest economies (America and China). But many others warned the UK would rue leaving the EU, assuming trade between them would plummet—hurting the broader economy. A 2018 government analysis estimated that, even with a free-trade agreement replacing EU membership, British GDP would be around 5% - 7% smaller after 15 years outside the EU versus in it.^[ii] Besides trade, others worried regulatory disparity meant companies would flee the UK, jeopardizing London’s status as a global financial center.

So some hoped for a Brexit boom, while others feared a Brexit bust. Five years later, neither looks correct. Reality appears somewhere in the middle and rather banal. On the trade front, not being tied to the EU has provided the UK with increased flexibility (e.g., during tariff negotiations with the US). The UK also signed several free trade deals (with Australia and New Zealand) and economic agreements (with Japan). Perhaps the UK’s biggest win was joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (yet somehow not winning a name change despite the UK’s, um, distance from the Pacific Ocean). But don’t overstate the benefits. As the UK government itself acknowledged, joining the pact potentially adds £2 billion a year in economic activity over the long run—less than 0.1% of UK GDP.

On the flipside, exiting the EU’s single market hasn’t decimated UK commerce either. The EU’s share of UK goods exports has trended downward more quickly than its share of imports after Brexit, but the change in the economic relationship doesn’t appear to have reversed longer-running trends. Trade outside the EU became the UK’s major goods export and import growth engine well before the Brexit vote in mid-2016. And even this, shown in Exhibit 1, understates the full picture since it excludes services—the major driver of UK trade growth.

Exhibit 1: EU’s Share of UK Goods Exports and Imports Over the Past Decade

Source: ONS, as of 2/5/2025. Real EU goods exports and imports as percentage of total UK exports and imports, quarterly. Note, these measures don’t include services.

As for other worries, the UK’s mighty financial services sector hasn’t abandoned London. Banks adapted by hiring more staff on the Continent, benefiting financial hubs like Paris and Frankfurt, while some EU firms added jobs in London to maintain a UK presence.^[iii] Now, it is true London has been losing listings—according to the London Stock Exchange, 88 companies delisted or transferred their primary listing from London with only 18 taking their place—the biggest net outflow since 2009.^[iv] Moreover, through mid-December 2024 new listings were on course for their lowest since 2009.^[v] But in our view, this is less about London or the UK more broadly—and more about which equity sectors have led in recent years. The UK market slants toward value-heavy sectors. But growth has led for most of the past 10 years while value has frequently languished, diminishing the appeal of listing anywhere value comprises the bulk of the market, since founders may think markets undervalue their companies. Besides, it isn’t as though US or EU markets are seeing a huge flood of IPOs lately.

What of Brexit’s proclaimed benefits, e.g., vast deregulation? That also hasn’t come to pass. Some of this hope was always overstated, in our view. Deregulation sounds great on the campaign trail, but altering well-entrenched rules requires more than waving a magic wand. It can require legislation, which can be cumbersome. For example, the UK aimed to remove all retained EU laws by the end of 2023—but pushed that back to at least 2026, as government didn’t have enough time to review all the legislation.^[vi] Meanwhile, UK regulatory bodies have been adding headcount, not subtracting, according to a think tank’s recent study.^[vii]

Don’t get us wrong: Brexit has affected many parts of British society—and those changes aren’t all easily quantifiable. But all the fretting and long-term forecasting can overshadow businesses’, governments’, and individuals’ incentives and ability to adapt—a powerful force. Given Brexit’s long implementation period, companies had time to adjust to new political realities. From hiring staff in Europe to adjusting supply chains to appealing for extensions, businesses found innovative ways to carry on.

Note, too, the big news story of the day won’t always dominate. Over time, developments fade into the background. Yes, there was a time when a Brexit story dinged sentiment or stirred uncertainty—remember the “soft” vs. “hard” Brexit debate? The many aborted Brexit agreements? But markets are efficient discounters of widely known information. As the withdrawal process progressed and details firmed up, Brexit lost its surprise power as markets pre-priced in the probable outcomes—and moved on. As novel as Brexit may have been in 2016 and 2020, it eventually became background noise for stocks. These points are worth keeping in mind whenever headlines warn a big external factor will hurt economic growth or deliver massive benefits.