After years of intense negotiation, the United Kingdom and the European Union finally reached a trade deal. This was important in helping avoid the potential "No Deal" Brexit that would have been more harmful to the country's economy. But, even with a trade deal, the Brexit is likely to have a number of major impacts on the UK's economy. This is particularly going to be compounded by the harsh impact of the COVID-19 pandemic on the global economy.
On the positive side, the Brexit deal guarantees UK producers a tariff-free trade with the EU. This means that UK manufacturers will retain access to the 450 million consumer EU market which is the traditional market for about 40% of the UK's exports. They will also have easy access to supplies from the EU. This is likely to boost the country's economy.
On the other side, the Brexit is expected to have some negative implications on the UK's economy. According to the UK Office for Budget, the Brexit is expected to lead to a long term economic loss of about 4%. Some of the key areas to be impacted by Brexit include:
The trade deal between the EU and the UK makes sure that United Kingdom goods are not slapped with tariffs when exported to the EU. However, as a foreign country, the goods from the UK to the EU are subjected to more paperwork such as export declarations and custom checks. These additional export requirements are likely to push up the cost of doing business with the EU, cause costly delay and deter potential foreign investments in the manufacturing sector.
Immigration was one of the major issues during the 2016 Brexit Vote. Many Britons felt that foreign cheap labour from the EU was affecting their job market. With the Brexit now completed the number of EU workers allowed into the UK has drastically dropped. However, some sectors are now staring at worker shortages. According to the National Farmers Union, UK farms rely on some 70,000 to about 80,000 seasonal workers annually. With the UK limiting the number of emigrant workers, farmers are likely to suffer losses. Many other sectors that relied on cheap labour to bring the cost down are also going to suffer.
Loss of Important Investment
It has taken the country about four years to reach a deal with the EU. According to Berenberg analyses, the GDP of the UK slowed down year after year for the three years following the Brexit vote 2016. This has been attributed to foreign investors preferring other European cities over London. This can be seen in how many foreign banks have been moving their operations from London to other cities across the EU. This is expected to continue as the deal did not provide for special treatment of UK based firms in the EU.
The United Kingdom is Europe's financial hub and the leading financial services exporter in the world. According to TheCityUK, the UK had a financial services trade surplus of £60.3 billion in 2019, putting the country well ahead of top rivals such as the United States, Singapore and Switzerland.
However, in the years following the 2016 Brexit referendum, foreign financial services have moved about £1.2 trillion in assets out of the UK to EU countries. This has in effect relocated about 7,500 jobs out of the country. The fact that the deal signed with the EU has not given UK financial services firms access to the larger EU market it is expected that more foreign financial services firms are likely to move their presence out of the UK and thus affecting the country's economy.
With the Brexit agreement signed, it is clear that the UK will avoid a disastrous "No Deal" Brexit. However, the deal signed still limits the country's commercial relationship with the EU. This reduces its trade and has an impact on its GDP. The situation is further compounded by the COVID-19 pandemic which has slowed down economic activities across the world. It is therefore expected that the UK's economic growth will decline in the next few years before growth can be recorded.