If the current economic climate in the United Kingdom has to be characterized in one word, that would likely be “uncertain.” The British government still hasn’t announced any specific measures they would like to take in the negotiations with the European Union, leaving everyone else guessing what would happen when the March deadline approaches. For now at least the Bank of England is paying attention.
Currently the state of the British economy is not bad: wages are growing and inflation is rising, which are both indicators of economic health. To curb inflation closer to the 2% ideal target, this week the Bank of England voted to increase interest rates to .75%, the highest they have been since 2009. This is a countermeasure to an earlier lower decrease of the interest rate adopted shortly after the Brexit vote to cushion the blow to the British pound in the months that followed. Now the slightly higher rate will help add more value to savings, which is quite important while we wait to see how Theresa May’s government will handle Brexit.
Despite negotiations between the United Kingdom and the European Union being underway for over a year and a half, no significant agreements have been reached. Businesses in the UK want May’s cabinet to yield to the EU wherever possible in order to secure a customs-free trade with Britain’s most important market partner, but the politicians who supported Brexit in the first place are resisting these plans. Eurosceptics who pushed for the Brexit vote are afraid that a trade deal with the EU would come at a high cost: allowing access to EU workers to the British labor market, for instance, which was one of the key reasons why the United Kingdom wanted to leave the bloc in the first place. Yet international tech, automobile, and financial companies operating in the United Kingdom have suggested that if no deal is reached, they would move their headquarters to another European location in order to avoid heavy fees. This would likely increase unemployment in Britain significantly.
Some concerns regarding the trade of important goods such as food and pharmaceuticals have been raised. If May’s government fails to reach a trading deal with the European Union, Britain could experience a shortage of food products and medicine typically imported from Europe while companies adjust to new regulations. This is why the French pharmaceutical company Sanofi (which produces the majority of vaccines) and the Swiss Novartis (which makes the most popular ADHD medication, Ritalin, among others) are currently increasing their British supplies, trying to sneak in as much product as possible before Brexit. The British GSK is also increasing the supply of its products in the EU, though an actual shortage is not expected there; the company is merely trying to minimize possible future losses.
Aside from medicine, food is the other worrying sector. According to CNN, 50% of all food sold in the United Kingdom is imported. If no deal is reached with the European Union, the UK won’t likely suffer anything resembling a famine, but there will be a food shortage among certain products which are getting delayed at border control, or as some suppliers refuse to deliver to the United Kingdom to avoid paying customs charges. Right now it is not clear what May’s cabinet is doing in order to ensure there are enough supplies of everything important before the deadline. Even if the government is hopeful that a trade agreement with the EU is possible, they should still try to prepare a back-up plan, which the major industries in the UK are not seeing right now.
The official deadline for a Brexit agreement is in March 2019, but businesses would likely need to know what to do months in advance in order to plan their strategies better. This is why the next couple of months will be crucial; we need to keep a close eye on Brexit talks.
