Andrew Bailey is wrong. Brexit has been good for the economy, writes economist Emmanuel Igwe
Britain’s economic catastrophe can’t be blamed on Brexit
23 Jun 2026
This article was first published on LBC.
After confirming that the Bank of England’s interest rate would be held at 3.75%, Andrew Bailey reprised his lament that leaving the European Union would shrink the British economy.
He went as far as to say that the state of the economy is a vindication of the Bank’s pro-remain stance. When we reduce the size of the markets we trade with, the Governor argued, we reduce the size of our exports, which negatively impacts economic growth, productivity, and division of labour. To give credence to his opinion, he said, “We learnt this from Adam Smith by the way. I’m not making this up”
Yes, Adam Smith made similar remarks in The Wealth of Nations, but not in the limited context the Governor insinuated in his comment. As he fleshed out the concept of division of labour in Chapter 3 of his book, Smith’s insight was that division of labour is derived from the incentive to exchange goods and services. Thus, the extent of division of labour is limited by the extent of the market. In other words, Smith’s argument was for commerce with the largest possible market (i.e. the world), not a regional protectionist bloc with a cordon sanitaire of the common external tariff for non-members.
To enlist Smith in defence of the EU while Britain signs free trade agreements across the world that would have been forbidden when it was in the EU’s regulatory orbit is a woeful misreading of Smith.
Smith would not want Britain to be shackled to a supranational body that defines its trade policy. Certainly not one whose share of global GDP has consistently fallen from 27% in 1980 to 14% in 2025, while growth migrates to the countries Britain can now freely trade with.
When we look at the evidence, the Governor’s claim becomes shaky, at best. His argument is based on a counterfactual that models the scenario in which Britain never left the EU – against which reality is found wanting. It is common in economic research to make such an analysis, but these findings do not reveal much when the reality shows that Britain has sustained trade with the EU while improving its trade with the rest of the world.
It is hard to sustain the idea that Britain has reduced the size of the market it trades with when we look at the numbers. This week, the FTSE100 remained comfortably above the 10,000 mark, having spent most of the Spring outrunning Wall Street and growing at record highs.
Whilst Britain maintains its trade with the EU, trade with non-EU countries continues to grow, with service exports reaching approximately £544.7 billion last year – up by 3.1% in the previous year. We never saw the immediate year-long recession or the expected 500,000 redundancies George Osborne warned the country about if Britain left the EU.
Where there has been economic damage must be stated clearly. Britain’s productivity malaise predates Brexit and afflicts every ageing Western economy, except perhaps the United States. The balance of trade deficit in goods trade with the EU has been the case for decades, so it cannot be blamed on Brexit. A mixture of punitive taxes on businesses and over-regulation is what has hindered manufacturing and amplified a risk-averse business environment detrimental to economic growth.
Brexit has not been the success it could and should have been, but Britain’s ability to maintain trade with the EU whilst expanding trade deals that the EU would previously have prevented should challenge the confidence of Remainers when they label it a catastrophe. Mr Bailey’s model may be complicated and appeal to his bias, but he should not mistake it for the truth.
In fact, while Britain’s goods export to the EU in 2025 fell by 14% in comparison to exports in 2019, its service export – which forms the bulk of Britain’s economy and where it maintains comparative advantage against the EU – grew by 28% in the same period.
The National Institute of Economic and Social Research (NIESR), for instance, awkwardly note – despite their tagline that Brexit was bad for Britain’s economy – that Britain would have faced “many of the same challenges” had it stayed in the EU, and that closer alignment with the EU would only deliver “modest” gains to the British economy. No one does the weekend shop based on a counterfactual.