Britain’s Economic Troubles and Brexit

It has been a year since Britain had its vote to leave the European Union. Since then, the British pound has lost 13 percent of its value in comparison with the euro which has raised the cost of imports of goods that Britons import a lot of including meat, cheese, wine, and gasoline.

British exports have increased, especially in whiskey, salmon, and chocolate, because it is cheaper for countries to buy British goods now that the British Pound has been weakened. However, the automotive, aerospace and medical device industries have suffered because many of the components needed to create these machines need to be imported into Britain which raises the price of the final product as imports are now more expensive.

This decrease in the value of the British Pound has also stopped many Britons from going on their annual vacations to warmer climates in the European Union.

Inflation coupled with stagnant wages may have led to the decision for Britain to leave the European Union as common Britons were not benefitting from the lucrative union with other European countries as much as big companies and banks were. The Conservative Party was expected to carry out negotiations with the European Union in terms of Britain leaving, but the public’s discontent with the lower quality of life in Britain has been targeted at the Conservatives leading to their downfall in the recent election where the Labour Party took on more seats.

Prior to Brexit, the British economy was growing at a rate of 0.7 percent every quarter. Now, it is a much slower rate of 0.2 and is only expected to grow at a rate between 1.5 percent and 1.75 percent for the next year or two. This could be because consumer spending comprises two-thirds of the British economy and with prices rising and wages staying the same, people can no longer afford to consume as much as they once did. As of April, outstanding credit card balances in Britain were 10 percent higher than a year earlier, according to the Bank of England.

This is a strong indication that Britons wages are not able to keep up with inflation. Unemployment in Britain has dropped down to 4.6 percent, the lowest it’s been since 1975, but that number does not tell the whole story. This low level of unemployment is caused by the gig economy where people take up part-time or temporary jobs. Usually, when unemployment is low, workers have the bargaining power because there aren’t many other people out looking for jobs that could replace a worker. These workers then negotiate with employers for higher wages. However, because these jobs are only part-time or temporary and many workers are not unionized, workers do not have the same negotiating power as they once did.

Uncertainty as to how the Brexit negotiations will go as well as the unpredictability of President Trump and his affect on world order have made companies reluctant to invest in Britain. Approximately 15,000 to 80,000 jobs are expected to be lost in Britain over the next two years as a lot of banking jobs leave the country.

About one-third of Britain’s banking involves transactions for clients in Europe which Britain may no longer be able to do when Britain leaves the European Union. The financial industry has been pressing Prime Minister Theresa May to maintain Britain’s inclusion in the European Market so that money may keep flowing into Britain. Peter Dixon, a global financial economist at Commerzbank AG in London believes that as the Brexit negotiations go on it will affect business greatly. “Even if companies don’t slash investment, they are likely to postpone expansions,” Dixon said.

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