In January 2021, Britain formally exited the European Union (EU), following a UK-wide referendum that took place five years earlier in June 2016. Over these intervening years, as the British government struggled to make decisions on how it would leave the EU and asked for several extensions to try to avoid a “no-deal” Brexit, economic experts had the time to make predictions on how leaving the world’s third-largest economy, after China and the US, would impact the British economy.
Some experts predicted that the British economy would shrink up to 9.3% in the 15 years following the withdrawal from the union. The Bank of England warned that the country may be plunged into a financial crisis worse than that of 2008. Overall, the prospect of trade barriers, loss of workers and investment, and the loss of London’s status as Europe's financial capital induced fear and concern amongst the people of Britain, from citizens to business owners and government officials.
Now that Brexit has been in effect for a year, we can take a step back and assess how it has affected British businesses so far.
Was Leaving the EU Worse than COVID?
The Covid-19 pandemic was bad for economies worldwide as businesses were forced to temporarily close their doors, travel was interrupted, worker shortages ensued, and supply chains became disrupted. As Britain entered 2021, it was already faced with the challenge of bouncing back from the economic damage of 2020, where its GDP had declined by 9.7%, its steepest decline since records began in 1948 and estimated to equate to the worldwide depression of the 1920s. On top of this, the country then faced the challenge of leaving the safety of the EU and stepping out into the world as an independent trading nation.
At the end of 2021, the UK Office for Budget Responsibility released forecasts that estimated that the long-term economic impact of Brexit would be worse for the British economy than the Covid-19 pandemic.
British businesses have been forced to cope with a lot of adversity over the last two years. While some companies report that they have prospered in these challenging times, most who trade with the EU have found that processes are now more complicated and time-consuming. At the beginning of 2021, things got off to a bad start with delays at ports due to increased red tape, hurting supply chains and cash flow. This was felt both by British and European exporters. Figures show that in the first month following Brexit, British exports to the EU fell by a huge 40%, representing the biggest monthly decline in the last two decades.
Following this, UK exports have shown some recovery, although some sectors have been hit harder than most, such as food and clothing. As a solution, some British exporters are looking to other markets. In the run up to Brexit, there was a 4.2% rise in exports to non-EU countries, a sign that companies are planning their futures in non-EU markets to avoid the challenges that post-Brexit trade with the EU poses.
Overall, the debate continues as to whether Brexit will ultimately be good or bad for British businesses. Initially, it has posed significant challenges but it also presents an opportunity for evolution and growth in other markets.
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