UK economy after Brexit: Will the UK be able to recover?

The State of UK Economy after Brexit and the Road to Recovery
Brexit refers to the departure of the United Kingdom from the European Union and the European Atomic Energy Community. The UK decided to terminate its membership because it no longer led to a prosperous economy, control over immigration, protection against crime and terrorism, and efficient public services. The exit has had an impact on the economy, immigration, and British politics.

Why UK left the European Union

When Britain joined the EU in 1973, it did not receive an economic boost as expected. The economy remained the same. The British then compared the economies of the other 27 EU states when they had joined the bloc and four decades later. The finding revealed that 20 of the 28 member states’ economies had deteriorated while the remaining eight states had grown exponentially. The eight states consisted of eastern European countries that joined the union after their economy had collapsed due to communism.

Later on, they freed up their economies and caught up with their counterparts in the west. This process would still have occurred even if they had not joined the EU. From these revelations, the British determined that joining the union did not improve their economy, and thus, leaving wouldn’t be a mistake. Since then UK economy has been grappling with goods exports to the EU falling 40% while the imports dropped 28%. These figures led to a 2.9% monthly decline in the economic output.

The Economic State of UK after leaving EU

The decline was a result of ending almost 50 years of free trade and triggering tariffs. The free trade and reduced taxes enabled the UK to trade goods with fewer barriers and reduced prices for consumers. With the departure, the economy has faced increased paperwork, business production costs, and border delays on either side. Economists believe that the UK drop in trade was maximized by stockpiling as the countrys’ new rules were put in place, and the decline echoed the disruption caused by withdrawing from the bloc. Overall, exports dropped 19%, and imports declined 21%, the most significant monthly decline since 1997. Shipments to countries outside the EU have increased slightly while imports from non-EU countries had an 8% decline. Since the EU is Britain’s leading trade partner, contributing to more than 40% of exports, it will be challenging to deal with the impact of increased barriers.

Trade has also affected some sectors more than others, in this case, the agro-food and chemicals exports being the most affected. The agro-food sector has been subjected to numerous new checks that the small businesses were ill-prepared. The chemical businesses have also been subject to regulatory regimes. These measures are put in place by the EU to regulate the movement of chemicals. Most companies were not ready for the end of the transition period, which meant they experienced new paperwork and requirements. Since paperwork is a necessity in business transactions, many businesses were halted for long periods.

The withdrawal from the union has led to uncertainty in businesses. There was an estimated 6% reduction in investment as well as a 1.5% decline in employment. This is because the EU provided them with many customers due to the reduced costs and restrictions. Without the union, Britain had to pay the extra expenses as well as deal with regulations. In turn, taxes increased to deal with the additional costs, and once the goods reach the consumers, the prices will have increased exponentially. Various firms and businesses are downsizing to deal with the changes.

The supply chain is also another vital area of concern for many businesses. There has been a disruption in the flow of goods and services since the UK left the EU. Due to the restrictions, it has become difficult for goods to be imported, which means that customer needs are not met. This disruption has resulted in numerous businesses stockpiling their goods. This is not necessarily a bad thing, as it has helped companies navigate this period of uncertainty. Businesses have been able to ensure that consumers have access to products that they need. However, the downside is that it creates pressure on firms to acquire more space to stock. It is also challenging to determine when and how the businesses will sell their goods.

The level of employment is also likely to reduce as a result of the exit. Some EU representatives within the UK have shut down their businesses which resulted in job losses in London. Major car exporters are forced to retrench workers due to the continued obstacles faced when exporting to the EU states. The inflow of labor from the EU citizens is likely to reduce. Businesses that seek to employ foreign workers have to adhere to strict regulations such as sponsorship licenses. The reduced number of workers will reduce their contribution to UK public finances.

Conversely, other job opportunities might emerge as a result of competition among industries. This is because it helps drive labor towards productive employment. Competition improves the productivity of the business. This, in turn, enhances the quality of goods and services and leads to increased economic growth.

Later on, the struggling economy was dealt a double blow when the Covid-19 pandemic began. Specific sectors such as hospitality, tourism, transport, and arts and entertainment are the most affected regarding the economic impact of Covid-19. The GDP declined by 9.9% in 2020, which was arrived at through estimating the output, expenditure, and income approaches. The labor market suffered a great deal. Many companies had to downsize due to restrictions and lockdowns. Later on, unemployment cases were on the rise. Over two million claims for benefits were made by UK citizens since mid-march last year.

Despite the governments’ efforts to support their people during this pandemic, financial well-being is a huge problem. Many households have reported a severe drop in job security and a decrease in earnings since April, consistent with UK consumer confidence dropping to levels not seen since the 2008 financial crisis. Household expectations for the economy’s future and personal finances are vital indicators of economic activity. Pessimism often leads to higher precautionary savings and less consumption. These findings indicate that the government has to improve economic confidence by creating a successful response to the health crisis for the economy to recover.

The World Trade Organization has estimated that global trade is likely to fall between 13-32%. This is larger than the fall experienced during the financial crisis, where it fell by 12%. Trade has been adversely affected by Covid-19. Due to travel restrictions, shipments of goods have gradually decreased. This was a result of trade tensions within the international trade systems. At the time, there were increased new restrictions, distortions, and tariff increases. All these hindered the movement of goods. Reductions in global trade result in slower productivity growth, limiting the economy’s ability to rebound quickly.

The Path to Recovery

In terms of recovery from the pandemic, economists estimate that it will take approximately 18 months for the UK economy to recover. They will, however, lag behind other countries. Analysts expect a 7.5% growth in the economy. This will be due to the resumption of hospitality services such as hotels and other businesses such as stores. As vaccination programs are underway, there are grounds for optimism that normalcy will return. Countries need to tread cautiously due to the potential impact of new virus variants. This caution is reflected by the European Central Bank’s decision to maintain its Covid-related economic stimulus program.

Since the exit, the UK has made positive developments. For example, the 2021 budget introduced a string of measures, from a reduced tax incentive to stimulate private investment to create the national infrastructure bank. The visa system is also going through changes to encourage more high-skilled immigrants to come into the country. These measures will move the country towards positive economic growth as it reduces the price of the goods and increases the labor pool with skilled individuals. This year, an announcement on creating a new research agency was made. It aims to increase the GDP to 2.4% by 2027, and it will be a “high-risk, high-reward scientific research.”

The UK will have to go above and beyond to recover from Brexit. Various structural changes have to be made to improve economic growth, for instance, the expansion of the construction sector. This is a vital investment that can bring up to 50% growth. Government contracts construction companies need to develop infrastructure within the health, transport, and education sectors, improving the economy. Another critical change is climate control. Governments that put policies to improve the environment enable their workers to improve their productivity and efficiency. Once the UK government can work through their climate crisis, they will revive their economy.

The UK departure from the EU and the Covid-19 pandemic has resulted in numerous adverse effects on its economy. As seen, the economy is still adjusting to the changes, but various strides have been made, which indicate that they are headed in the right direction. With these measures in place over time, the economy will eventually be able to recover.


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