The ongoing negotiations between the EU and UK forecast a harder than expected Brexit. Over a year has passed since the UK referendum results indicated a 52% vote to leave the European Union. Since June 2016, several effects have been felt for currency markets, labor markets, GDP and migration. This article will detail these changes from the past year and examine the various sectors of the UK economy at risk.
The sterling began the decline against the U.S. dollar immediately on June 23rd, 2016 after the referendum. UK Prime Minister, Theresa May, held a speech on October 5th, 2016 titled ‘citizens of nowhere’ which led to additional downfall of the Sterling. Other note full Sterling falls occurred after May indicated the UK was likely to leave the single market in January 2017 and after the June 2017 general election where conservatives lost their parliamentary majority.
Furthermore, the UK experienced a 2.4% inflation increase from June 2016 to May 2017. With earnings growth not keeping with the pace, UK consumers underwent another period of falling real wages. GDP grew 0.6% on average in the second half of 2016 while the first quarter of 2017 only saw 0.2% growth. Additionally, immigration into Britain has decreased while emigration out of Britain has increased.
Various industries and sectors of the UK economy are experiencing uncertainty. Two-thirds of UK agricultural food exports head to the EU per year and growers are extremely dependent on seasonal workers and pickers from the EU. The UK government has promised subsidiaries to make up for this loss but no detailed plan has been enacted.
The financial services sector is likely the most important UK sector at risk. A possible scenario for the UK involves a deal with Brussels similar to the current condition. However, London and the UK would be positioned as a rule taker. Keith Knutsson of Integrale Advisors indicates that “a demand from the other 27 EU countries for access to London’s financial services market will likely result in a compromise for the UK and EU.”
Manufacturing is responsible for 10% of the UK economy. The automotive, aerospace and pharmaceutical industries are worried about a hard Brexit and propose the UK remain in the customs union long enough to form a trade deal with the EU. Finally, UK Universities support 750,000 jobs across the country with one-fifth being EU nationals containing unknown visa statuses. Adding to the equation, UK universities receive 800m Pounds per year in grants from the EU.
Many factors are at play during the ongoing negotiations and the measurable ripple effect from a Brexit is only a year old. Various UK industries including agriculture, manufacturing, services, financial services, and education face substantial risk in the equation.