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British economy decreases due to Brexit

A month into the new trade agreement between the EU and the UK, there are some signs of the deal negatively affecting the British economy. Gita Gopinath, a chief economist at the International Monetary Fund said on Wednesday that the British economy is likely to see around 1% decrease in its GDP in the first quarter of 2021 as a result of the Brexit disruption.

UK troubles reflected in data sets - British economy decreases


Experts from IHS Markit, a data company, say that the manufacturing and services industries have been hit the hardest by the disruption in the supply chains. According to their data, British factories saw the largest increase in supplier delivery times among the six ‘flash’ preliminary Purchasing managers’ Index (PMI). PMI is a measure of the prevailing direction of the economic trend in manufacturing and the survey carried out by IHS Markit included France, Germany, Japan, Australia, the US and the UK. 

According to the data analysts, “this was almost exclusively linked to both Brexit disruption and a severe lack of international shipping availability.”  

Car manufacturers faced their worst year in four decades


The car manufacturing sector has seen one of their worst years in four decades – the production levels went down by 29%. This is largely due to the supply chain problems the manufacturers are facing when trying to obtain the necessary car parts. 

The direct implication of lower manufacturing outputs was the mass reduction in staff levels across the industry, from manufacturing plants to supply chain operators. In 2020, around 10,000 employees working in the automobile sector were laid off and more job cuts are likely to follow as the furlough scheme ends. 

What the government has been referring to as “teething problems”, many trade experts say are issues that will be a permanent occurrence from now onwards. 

“They’re not teething problems,” says Mike Hawes, the chief executive officer of the Society of Motor Manufacturers and Traders. “This is now a permanent fixture of how we trade with the EU.” 

On the other hand, proponents of Brexit claim that Britain will benefit in the long run as it develops new trade agreements and relationships with countries outside of the EU.

Small businesses put off exporting altogether


What is clear, however, is that the short-term implications are hitting small businesses the most, as they simply do not have the resources to easily deal with the burden of extra paperwork and increased costs and taxes. 

According to the Federation of Small Businesses (FSB), there are around 6 million small businesses in the UK that trade with the EU – whether that’s exporting products or bringing in supplies for manufacturing purposes. 

“Increasing numbers of small firms are telling us that the uphill climb of managing new EU trade obligations could put them off exporting altogether,” said FSB national chair Mike Cherry.

Already, there have been several reports in the news talking about UK companies moving their production centres to the EU in order to avoid the supply chain disruption. This again has a negative impact on the British economy as more and more people lose jobs. 

What’s more, is that, in the long run, Britain’s competitiveness could diminish as these small businesses choose to set up operations outside of the UK. According to the chair of FSB, “that’s a real concern because businesses that sell internationally tend to be among our most profitable and innovative.”

How has Brexit affected your business? At UKCS we support UK businesses with any of their custom declarations and formalities requirements to make it as easy as possible for you to keep on trading with the EU. Get in touch if you have any questions!

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