Brexit is set to be the single largest event in the last 20 years in terms of the material impact on the UK workforces and businesses. Although the Brexit process is still shrouded in uncertainty, the UK economy has already shown signs, both positive and negative, of a major shift in behaviours and demand. The lack of clarity for UK businesses poses immense challenges, with employees, companies and markets all feeling the effects. So just how has Brexit effected our economy in the last 2 years?
The initial warning signs were clear to see, with the value of sterling declining rapidly, squeezing household incomes. The pound in-fact plummeted 10 percent against the dollar and continued to decline once Theresa May stated her desire pull the UK from the EU single market and customs union. Although the currency has bounced back substantially, it has still failed to regain its value pre-referendum peak.
With the fall of the sterling, the cost of living increased. UK businesses’ import prices increased which were distributed to consumers through higher costs for goods. Inflation, which was around 0.5 percent during the Brexit vote, sharply rose to 3 percent in late 2017. Prices continued to rise quicker than average salaries, increasing the living costs.
The FTSE benefitted as the sterling plummeted, rising 30 percent since the Brexit vote. A large part of this was from companies such as HSBC and GlaxoSmithKline whose profit was predominately made overseas as these earnings appreciated. Exporters have also seen an increase in their sales as overseas purchasers see the cost of products reducing in price, giving better value to international consumers.
It must be noted however that although the FTSE has seen growth since Brexit, once compared to European markets and the rest of the globe, the 30 percent return offered is behind most regions.
The UK is also lagging behind in terms of growth. Per annum, the UK was growing at around 2 percent during the Brexit vote. However in Q4 of 2017, this slipped to 1.4 percent. Meanwhile all the other Group of Seven (G7) regions announced healthy growth, leaving the UK last in the G7 growth table.
An analysis by the London School of Economics states that the UK economy is over £20bn smaller after the leave vote, a shrinking rate of £300 million per week.
The job market has also severely been effected through Brexit. The quantity of applicants from EU countries is rapidly declining through uncertainties surrounding Brexit with many more EU workers deciding to find opportunities outside of the UK according to a survey by KPMG. The government’s 2010 target of lowering net migration to the tens of thousands has never been met, however the sentiment has added fuel to EU national’s decisions to reject the UK as a place of work.
Employers are already struggling with the challenges encountered recruiting within their specialist sectors, which is a reflection of the pattern in migration recorded at national level. Employers are also conscious of the negative effect Brexit is having on making the UK an attractive proposition to work for EU migrants, resulting in fewer EU applicants.
There are many unanswered questions relating to the UK’s economy such as where GDP will turn next. The Office for Budget Responsibility has projected 1.5 percent GDP growth during 2018 whilst others believe it could be as low as 0.5 percent.
As the UK nears March 29th 2019 and the UK’s exit strategy becomes clearer, more answers may unfold. However as it stands, the UK and its people will have to sit and patiently wait for the Brexit process to unfold.