A Year After Brexit: The Impact on Trade and Industry
Scyphus has been writing about Brexit and its effect on SME and Industry in General, particularly because Britain not being a major manufacturing country, they now revisit the effect of Brexit on an economy that has shifted over the years vastly from a manufacturing to a service-driven economy. In 1948, British industry accounted for 41% of the British economy. By 2013, it was just 14%.
Northampton, UK, August 7, 2017 (Newswire.com) - It's been more than a year since the UK voted to leave the European Union. In that time, the impact on the economy has been profound. Scyphus Director Leslie Carr writes about the effects.
While Brexit negotiations are still pending, the UK's official split from the EU has rocked the business world. However, despite critical analysis from pro-EU economists, it appears that the UK economy is yet to suffer the downturn that was originally expected.
Uncertainty of any sort results in volatility, and Brexit will be no exception.
Raghuram Rajan, Ex Chief Economist, IMF
Although initial speculations were grim, there are many positive outcomes that are now keeping UK businesses hopeful that all is not lost. The present state of the economy may be somewhat below the mark, but the good news is that it has recovered most of its lost ground.
Hopes for the Pound
The night of the Brexit decision was the single most devastating blow to the sterling: it plummeted. In fact, it was the pound's biggest one-day fall against the dollar on record. As a result, currency traders predicted that the UK's decision to leave the EU would be a catastrophic blow to the British economy.
In recent months, however, the pound has recovered somewhat – but it's far from pre-Brexit days. With the pound now hovering around 14 percent below where it was 14 months ago, the impact on trade is being keenly felt. The cost of imports has jumped significantly, which has seen domestic inflation rise, increasing the cost of living. In fact, inflation appears to be increasing faster than worker's pay.
Material Imports: The Ups and Downs
Alongside the falling pound are the rising costs of imports and the prospect of tariffs. The combination of these factors has been earlier termed as the 'Brexit cost.' This was initially feared to spell disaster for many sectors of the UK industry. However, material imports from Britain to the EU have hit record highs since Brexit was announced.
UK government data from Scape Group has shown that net of imported materials from the EU have risen substantially – up by 15.3 percent, in fact. This is the highest since 2011. This is thought to be due to the higher prices for a range of materials, driven by the weakened pound exchange rate against the dollar and euro. As is typical in times of economic uncertainty, businesses tend to slow their spending. This naturally affects import/export volumes and shipping trade.
Material Exports: On The Rise
Prior to Brexit, the European Union was the receiver of around half of all British goods exports. In fact, 63 percent of Britain's good exports were linked to European Union membership.
The sterling's fall against the dollar and euro has significantly boosted exports and made UK goods more competitive on overseas markets. In fact, in January this year, the weakened sterling saw UK factories enjoy their strongest export orders in six years. Not only that, UK producers continued to welcome their biggest increase in competitiveness on record in non-EU markets between January and April. Domestic orders also increased at their fastest rate in nearly three years. Overall, it appears that while the pound's drop has boosted inflation, it is also offsetting some positive impacts by rebalancing the economy towards the external sector.
Retail Sales: A Little Rocky
Although a recession was feared, the UK has so far weathered the storm. Consumers have proved resilient, with GDP growth remaining steady. In the first quarter of 2017, however, retail sales fell by 1.4 percent. This was the biggest quarterly fall since 2010, and the downhill slide is set to continue. The combination of the weak sterling and recovering commodity prices has indicated that cost pressures are likely to increase, with manufacturers reporting that these costs aren't going to go away anytime soon. Unfortunately, because much of the UK's food comes from abroad, the tumbling pound has seen a squeeze on the food and drink industry in recent months. Costs have increased for suppliers, which has been passed on to consumers.
Shipping and Trade: The Good and Bad
Trading confidence in the UK took a dive following the Brexit announcement, which had economists fearing slower growth of UK container traffic. A slower-than-expected GDP growth contributed to their fears, which was likely due to the rise in living costs since June 2017.
When the UK leaves the EU, it will lose its access to the free trade market that currently exists between the 28 members of the union. As a result, the UK's trade tariffs will increase and customs procedures may become more complicated.
However, the potential for disaster will depend on trade agreements that the UK makes with its European neighbours.
Direct Container Services to the UK: Strong and Steady
Another post-Brexit concern for UK-based importers and exporters is the possibility of a reduction in direct mainline container services coming to UK ports. If this happens, importers will have to use feeder services, which adds yet another layer of complications to the shipping process. At present, 15 of the 17 Asia-Northern Europe shipping loops currently call at UK ports. The good news is that this looks set to continue. Independent international maritime experts at Drewry say that there looks to be no change to the high proportion of direct container arrivals to the UK. They also expect that the UK's high trade volumes will continue to justify these calls, albeit some reduction following Brexit.
Regulations and Legislation: Help Wanted
One of the advantages of Brexit is that the UK government is now looking to organisations such as the UK Chamber of Shipping for help with making favourable conditions for shipping. As part of the EU, the UK shipping industry can only adhere to EU rules. However, upon leaving the EU, the UK shipping industry will be able to develop legislation according to its own wishes. This will be guided by experts in shipping regulations and British companies who have long been lobbying the UK government for simplified trading procedures.
The Long-Term Impact of Brexit: Not All Bad
Although Brexit has no doubt changed UK/EU economic relations for good, there are some positives. Exports have jumped and many companies are feeling optimistic about the prospects of selling overseas. Maritime shipping experts firmly believe that long-term damage is unlikely. While the volume of trade between some countries may be affected, it's highly possible that increases will be mitigated by any decreases. In this sense, Brexit isn't expected to have an ongoing negative impact on overall shipping volumes. For now, importers and exporters are reassured that they can breathe a sigh of relief and get on with business as normal.
Note: The sentiments expressed herein are of Scyphus Director Leslie Carr.
Source: Scyphus, UK