For the future of the US, look to Brexit

The US likely experienced negative net migration in 2025 for the first time in more than half a century, according to recent estimates from the Brookings Institution. Along with the return of active tariff policy, the shifts in US fundamentals are substantial.

The full effects are likely to take some time to come through, with 2016’s Brexit vote offering striking parallels to the new US economy – and a harbinger of the future.

In the days after June 23 2016, companies and investors across the world worked furiously to understand what the vote would mean. Despite concerns, for most the initial answer should have been ‘not much’. But today, almost a decade later, the UK is struggling to grow, fiscal settings are hostage to a plucky bond market and there have been five Chancellors of the Exchequer in the past five years.

The US is unlikely to repeat this pattern, but some rhyming seems likely in time.

Brexit raised non-tariff barriers, which the Office for Budget Responsibility (OBR) suggests will reduce long-run productivity by 4 per cent, largely due to “the increase in non-tariff barriers on UK-EU trade”. These barriers are estimated to have added the equivalent of an average tariff of up to 20 per cent. The US’ average tariff rate was at 17½ per cent in October, consistent with levels last seen in the 1940s.

Brexit was widely expected to reduce immigration into the UK (though the reality has been different). The OBR’s initial 2016 assessment, which was necessarily assumptive given the fluid nature of negotiations, incorporated a sharp downwardly revised net migration forecast. This detracted 0.2 percentage points a year from potential output growth.

Both the US and UK have debt around 100% of GDP and budget deficits of 5 per cent to6 per cent of GDP this year. Neither has yet found the political common ground to tackle what are unsustainable fiscal trajectories.

Since September 2022 the UK government has been constrained by the bond market in its operation of fiscal policy. Journalistic flourishes aside, quotes from CNN that former Prime Minister “Liz Truss was defeated by the bond market” and The Guardian “the bond market is now our [the UK’s] unofficial second chamber” have more than a ring of truth.

The term ‘premium’ is a measure of the extra return investors require to hold long-term bonds. In the US it is widely viewed – including by the Federal Reserve Bank of St. Louis – as having risen substantially since 2020, reflecting the US’ fiscal position and the rise in inflation.

The UK’s fiscal challenges have prompted calls, for instance from the National Institute of Economic and Social Research and historian Adam Tooze, for change in the monetary policy framework. The calls focus on prioritising a return to economic growth at the expense of monetary independence. These examples argue in favour of suspending quantitative tightening (QT) when it pushes up bond yields, as has been the case recently.

The US Federal Reserve has been more proactive. It recently indicated it is likely to cease its QT program “in coming months”, reflecting its judgement that a larger balance sheet is required to maintain appropriate market functioning. The Fed’s balance sheet is 22 per cent of GDP, up from 18 per cent in 2019.

The US, perhaps by virtue of its reserve currency status, is under less immediate pressure, but we shouldn’t overestimate that protection. This year the gold price has risen by 60 per cent, the largest increase since 1979’s 120 per cent rise. In dollar terms, 2025’s $US1,600 per ounce increase is the largest on record by quite some margin.

The increase in the gold price is unusual, but so is its correlation with higher US bond yields. Usually, higher gold prices are associated with lower US bond yields. The rise in gold in our view reflects concern about debt levels and the undermining of fiat currencies.

If this concern was just about non-dollar sovereigns, such as France, Japan and the UK, the USD would be likely to benefit. But the $US has fallen this year. The higher gold price, therefore, can be singled back to a concern about the $US as a store of value.

The US has been on a growth performance tear since around 2010. US potential growth has outperformed the OECD average over the last 15 years. But outperformance is not innate. The reverse was true for the 15 years before that.

The similarities between the policy implications of the UK’s Brexit and the US economy are material. Patience, grasshopper.

Richard Yetsenga is Chief Economist and Head of Research at ANZ Institutional 

This is an edited version of a story that first appeared in The Australian newspaper’s print edition on January 26, 2026.