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Economics

Study Notes

How Brexit could affect UK industry

Level:
AS, A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Which industries are likely to be most affected by Britain’s exit from the European Union? Macroeconomic performance is the aggregation at the performance of micro industries and businesses.

The UK is due to leave the EU officially at the end of March 2019 although a transitional period has been provisionally agreed with the EU whitewall end in December 2020.

The consensus expectation is that a comprehensive free trade agreement (known as Canada+) will emerge from the discussions. 

Risks of a no-deal Brexit are substantial not least from disruption in the day-to-day operation of the customs system. In the event of a no-deal, we could realistically expect a further depreciation in the £ which would help the price competitiveness of exporters but also inject a fresh burst of cost-push inflation into the domestic economy via higher import prices.

How will businesses be affected?

Uncertainty and unpredictability are likely to have the biggest effect on planned capital investment but we must also consider the possible impact of Brexit on areas such as the labour market, trade and regulation.

Labour market: 2.4 million EU nationals in the UK compared to 1.3 million UK nationals in the EU.

Trade with the EU accounts for 48% of UK exports of goods and and 54% of exports.

Regulation - possible changes to regulatory structures - most importantly whether the UK remains aligned to EU regulations to allow trade to continue with few frictions.

Key industries to focus on:

Health care
EU countries provide 10% of hospital doctors, 7% of nurses and 17% of life sciences workers. So labour shortages post-Brexit might stretch further NHS budgets. These might be resolved by a new NHS tax.  

Pharmaceuticals will not be subject to import tariffs but non-tariff barriers will likely increase prices. Regulatory agreement with the EU will be crucially important. 

Food and Farming
Brexit raises many issues such as the future of farm subsidies, the Northern Ireland border, food standards and employment regulations.
Will the UK farm industry have the capacity to increase supply - currently around 1.3rd of food consumed in the UK is imported from the EU and twenty percent of people working in farming (many on a seasonal basis) are from other EU countries.

Telecoms
The UK is leaving the EU Digital Single Market. Will UK consumers have to start paying roaming charges when in the EU?

Financial services
London competing more with New York than other European centres. But banks face the loss of perspiring rights, a number of financial businesses will move HQs to other EU cities including Frankfurt, Dublin and Luxembourg.   

Automotive industries & supply chain businesses
UK and EU supply chains are deeply inter-linked. There is a lot of intra-industry trade. In the average UK-made car only 44% of components come from the UK. Component makers face an EU import tariff of 4.5%, vehicle makers will face tariff of 10%. Regulatory agreement will help control non-tariff barriers. Germany in particular as a major net exporter of vehicles into the UK has a strong incentive to strike a deal with the UK on automobile trade rules.

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