Boris Johnson’s Successor Will Face Challenges With Post-Brexit Turmoil, Inflation, Energy

Six years after Britons voted to leave the EU,  the government has yet to demonstrate clear gains from the U.K.’s new freedom to reorient its trade relationships and overhaul regulations that previously had been set in agreement with other EU members.

Leaving the EU has put the U.K. outside the EU’s huge market of 445 million consumers. Britain is no longer a member of a customs territory that stretches from Turkey to the Atlantic.

British businesses have had to contend with extra costs and paperwork to trade with the EU, which accounts for about half of all British exports. Before the war in Ukraine, that meant that the U.K. lagged behind its peers as global trade bounced back after the pandemic. Mr. Johnson had said that new trade agreements with the U.S., Australia, India and other parts of the global economy would make up for lost opportunities in Europe. A deal with Washington has so far eluded  the government, however, and trade experts say the deals it has secured mostly replicate the terms it traded under while a member of the EU.

Compounding the troubles are rising energy and food prices that have left Britons facing the largest fall in real incomes since the 1950s as the annual rate of inflation is set to peak at 11% by year’s end. The U.K. has the highest inflation rate of any Group of Seven country.

“The biggest issue is probably the cost of living,” said David Nosiah, a London-based communications manager. “I wish Brexit had never happened. But I don’t think there’s much we can do about that now. The cost of living is the biggest thing people are dealing with.”

The cost-of-living crisis stemming from surging inflation eroded support for Mr. Johnson’s government, which won power on a promise to follow through on a 2016 vote to leave the EU, but spent much of its time tackling the Covid-19 pandemic.

According to a regular survey by polling firm

YouGov,

Britons judged Brexit to be the most important issue facing the country when Mr. Johnson’s Conservative Party won a landslide victory in the December 2019 general election.

But by April 2020, the pandemic had displaced Brexit as the most important issue for potential voters. In February, following Russia’s invasion of Ukraine, the economy became the predominant concern for many Britons.

In late June, almost two-thirds of Britons said the economy was the most important issue facing the country; just 21% identified Brexit as the top concern.

Mr. Johnson was an early cheerleader for Brexit and as prime minister pursued policies that led to a definitive break with the EU.

Under his leadership, the U.K. left the EU customs territory and the single market, its zone of common regulation. Together those institutions had permitted goods to flow freely between member states without need for customs or regulatory inspections.

The U.K. also rewrote immigration rules that halted EU citizens’ automatic right to live and work in Britain, as well as Britons’ reciprocal rights to do the same in the EU.

“I am immensely proud of the achievements of this government, from getting Brexit done and settling our relations with the continent, after half a century reclaiming the power for this country to make its own laws in parliament,” Mr. Johnson said Thursday as he announced his resignation.

There has been little sign of the economic uplift that Mr. Johnson and his fellow Brexiteers promised in 2016.

In May, the government’s budget watchdog estimated that British workers would be 4% less productive over the long-term as a result of Brexit, while the U.K.’s exports and imports would be 15% lower relative to a scenario in which the country remained in the EU.

A June report from economists at the London School of Economics said that leaving the EU and moving to the more-distant trade relationship agreed upon by Mr. Johnson will result in a decline in average earnings after inflation of about 1.8% by 2030. “A less-open UK will mean a poorer and less productive one by the end of the decade,” the report said.

The U.K.’s split with the EU has also exacerbated disruptions from global supply-chain bottlenecks that have driven up inflation.

Mr. Johnson had hoped Brexit would help rebalance the U.K. economy, and “level up” parts of England’s poorer rust-belt areas in the north with its richer south. That was part of the appeal to the voters who abandoned the Labour Party and voted for the Conservative Party for the first time, helping Mr. Johnson secure a large majority in the legislature.

“Our assessment finds that the North East, one of the poorest regions in the UK, will be one of the hardest hit, and that Brexit will increase its existing (and large) productivity and income gaps,” the London School of Economics economists said.

The new prime minister also will have to manage divisions within the ruling Conservative Party over how much further the U.K.’s separation from the EU should go. The party is divided on whether a bigger, more activist state favored by Mr. Johnson or more traditionally Conservative tax cuts is the best way to maximize any gains from Brexit.

“Brexit is a beast which has now devoured three prime ministers,” said Stefan Koopman, an economist at  Rabobank. “A fourth prime minister, whoever this might be, will be added to the menu too if the Tories fail to get their act together. The massive structural change that is Brexit has widened already existing divisions.”

Members of the bloc hope the new prime minister will pursue a less confrontational path than Mr. Johnson, including abandoning legislation that would allow the government to unilaterally alter the terms of a 2019 deal that placed a customs border within the U.K., between Britain and Northern Ireland.

The issue is of particular importance to Ireland, which fears that a move it sees as a breach of international law would threaten a peace agreement negotiated in 1998 that ended three decades of violent conflict in Northern Ireland.

“The relationship between our governments has been strained and challenged in recent times,” said Irish Prime Minister

Micheál Martin

in one of the few statements by a European leader on Mr. Johnson’s departure. “We have now an opportunity to return to the true spirit of partnership and mutual respect that is needed to underpin the gains of the Good Friday Agreement.”

—Elissa Miolene contributed to this article.

Write to Paul Hannon at [email protected] and Jason Douglas at [email protected]