Brexit has had a significant economic impact on the UK since the 2016 referendum and eventual departure from the EU in 2020. Key effects have included increased trade barriers with the EU, labor shortages, foreign investment declines and general uncertainty.
Trade friction from leaving the EU single market and customs union has made commerce with the UK’s largest partner more difficult. Rules of origin requirements, customs checks and regulatory divergences have increased costs for UK exporters. Services trade has also been affected as passporting rights for financial and other services have ended (UK Parliament, 2022). This has reduced the overall openness and competitiveness of the UK economy.
EU worker exodus and tightened immigration rules have also spurred nationwide labor shortages across logistics, agriculture, healthcare and hospitality sectors. An estimated 1.3 million EU citizens have left the UK workforce since 2016 (The Migration Observatory, 2022). Without this migrant labor pool, many industries are unable to fill vacancies to meet demand.
Uncertainty and perceptions of the UK as a less open economy have seen foreign direct investment fall by over 50% since 2015 (UNCTAD, 2022). Multinationals are more cautious on long-term commitments and locating headquarters/operations in the UK market given ongoing Brexit transitions. This negatively impacts productivity, jobs and innovation.
However— some forecasts predict improved GDP growth post-pandemic as consumer spending recovers locally and trade agreements with non-EU states expand in the long run (EY-Parthenon, 2022). But regaining competitiveness will require concerted policy efforts in skills, technology and infrastructure alongside an attractive business environment.
Adopting a more flexible, competitive business environment with targeted tax and regulatory reforms could also attract foreign investment that may have previously located within the EU. The UK’s strengths in services, technology and innovation indicate potential for knowledge-intensive investment if conditions are conducive.
Domestically, reskilling and upskilling programs are needed to address labor shortages through equipping the workforce with in-demand skills. This includes: expanding vocational training routes, lifelong learning initiatives and support for career transitions. Tapping retiree talent pools through flexible work arrangements can further supplement labor availability.
