On 23 June 2016, the UK public voted to leave the European Union by a majority of 51.89%. This article explores the impact of Brexit on UK Businesses, both now, and in the months to come.
A Fall in Value of the Pound
As predicted, the immediate effect of the UK announcing its plans to leave the EU was a fall in the pound. This drove up domestic prices in the short term, causing a slight inflationary spike and impacting the day-to-day lives of UK nationals as certain items – particularly those imported from abroad – became slightly more expensive.
The London School of Economics reported an unprecedented drop in value of the pound in the immediate aftermath of the Brexit announcement. On the night of the referendum, the British Pound fell from $1.50, to $1.33, representing the single biggest drop in daily exchange rates in the world’s four biggest currencies since the 1970s.
Growth in the UK’s GDP has slowed, though remained positive, since the Brexit referendum. Compared with other G7 Nations, namely Canada, France, Germany, Italy, Japan, and the United States, the UK slipped from having the highest GDP growth rate to the lowest.
Analysts report that productivity fell in the UK in the aftermath of the Brexit vote. Output per worker has stagnated since the referendum, whereas in other OECD countries, it has risen.
Since the referendum, UK purchasing power has fallen, and real wages have, on average, remained flat. Meanwhile, consumer prices have risen, reducing spending power, although food prices have largely returned to low levels of inflation.
Sahel Majali, Chairman of Mid Group, has previously spoken online about the impact of Brexit. As Mr Majali points out, negotiations are likely to prove key in cementing the UK’s relationships, both with the EU and the rest of the world, post-Brexit.
Brexit’s Shadow Still Looms Over the UK Economy
As we enter 2020, four years after the Brexit referendum, with the fine details of our departure from the EU yet to be agreed, analysts predict that the UK faces its weakest growth outside of recession since World War II.
Nevertheless, inflation hit a three-year low in November 2019. Despite spiralling prices for certain commodities like chocolate, inflation stayed below the Bank of England’s 2% target, encouraging the central bank to lower interest rates.
In the run up to the Halloween Brexit deadline, British companies started stockpiling imports. While unemployment fell to just 3.8% in the latter part of 2019 – its lowest level since the 1970s – slowed wage growth has hurt high street spending habits. Retail sales in November 2019 slumped as shoppers tightened the purse strings in the run up to Christmas, with even Black Friday failing to convince consumers to part with their cash.
How Can UK Businesses Prepare for Brexit?
The UK left the EU on 31st January 2020. The precise details of any trade deal between the UK and EU remain subject to negotiations over the coming months, creating great economic uncertainty.
Businesses that buy from and sell to EU nations are being warned of the need to put in place contingency plans. They need to consider how VAT changes could impact them; how their principal contracts could be affected; how customs duties and checks could affect their sales and supply chain; and where they could access increased funding, should they need it.