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How Did Brexit Affect the UK Economy?

Brexit is a topic that is less reported on since the impact of Covid-19, but it is important to recognise that it has still had a significant effect on the UK economy. ARB Accountants are here to discuss how Brexit has affected the UK economy, as well as detailing the main benefits of Brexit for the UK. 

So, how did Brexit affect the UK economy?  Brexit affected the UK economy by decreasing the value of GDP in comparison to EU countries, causing a large decline in Foreign Direct Investment and contributing to a record high inflation rate. All of these factors have resulted in a weaker economy in conjunction with the impact of Covid-19. 

Keep reading to find out more about how Brexit affected UK businesses as well as the benefits of Brexit for the UK. 

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How Did Brexit Impact the UK Economy?

The Brexit agreement was implemented 1 February 2020, which was very close to when the Covid-19 outbreak took place in the UK. As a result, the economic impact of Brexit on the UK can be difficult to determine due to the impact of Covid-19 also interfering. However, there are some inferences that can be drawn from the data therefore we have detailed the main ones below. 

Decrease in Gross Domestic Product (GDP):

According to research, it is predicted that Brexit will reduce the UK’s GDP by 4% in relation to EU countries. The research found that there has been a significant decline in GDP growth for the UK compared to Germany, Spain, France, Italy. The table below shows the percentage of GDP growth for the various countries between the period of Q2 2016 and Q3 2021. 

United Kingdom 14.3% 
Germany 32.2% 
Spain 25.6%
France 23%
Italy 16.3% 

One of the main reasons for the slow growth in GDP for the UK, is that we have not been able to recover our exporting systems as well as the other countries. Exportation is a large part of the calculator of GDP and it shows that our economy is not as strong because we are not trading as well as other countries. The cost of trade has increased for countries outside of the EU therefore, the UK is not able to keep up with the countries. 

Foreign Direct Investment Decline: 

Official government statistics state that foreign direct investment (FDI) declined by 17% in 2020-21. This can be partly attributed to the impact Covid-19 due to the huge government debt of £79 billion that was attributed which was not attractive for external investors. However, Brexit also contributed to the reduced FDI because investors did not find the uncertainty of regulations relating to Brexit, to be an appealing or investable prospect. Unfortunately, this then acts as a vicious circle, because without the investment into the UK it is more difficult to improve our economy. 


Research also shows that inflation has hit a 13 year high and the UK consumer price index rose by 4.8% in December 2020. The rise in inflation falls in line with the increased costs for fuel, energy, and trade which when combined with Brexit have resulted in the highest rate of inflation since 2008. 

Brexit has caused an increase in inflation, partly because of the issues with trade. With regulations and costs making it harder for us to export products, we are relying more on importing goods which has increased the demand and prices.

What are the Benefits of Brexit for the UK?

The UK  government has set out a policy paper which details a huge variety of claimed benefits that Brexit has enabled for the UK. We have broken this down into the main ones for you below.

Managing our MoneyNo longer paying EU contribution funds 
£67 million more for the NHS
Controlling our own VAT rates 
Reforming our procurement processes for the purchase of goods and services 
New subsidy regime for local businesses 
More Support for Our BusinessesSimplifying the reporting burdens for smaller businesses
Setting out a new pro-competition regime for digital markets 
Reviewing the standards framework for patents 
Reviewing current data laws
Reforming EU financial regulations 
More Support for Families & PeopleProviding life-changing opportunities in education
Allowing aspiring teachers from all around the world to gain a teaching qualification in the UK
Allowing more duty free shopping Improve the service received from the NHS
Improving the safety of NHS patients
Protecting our Environment Rewarding farmers for their contribution to the environment
Implementing a framework to save our environment
Setting a zero emission vehicle mandate 
Enhancing Animal Welfare Standards Banning the export of live animals for slaughter
Banning puppy smuggling
Implementing an animal welfare legislation 

How Did Brexit Affect UK Businesses? 

Despite all the benefits of Brexit, UK businesses have been affected in multiple ways. Ranging from trade to a decrease in labour, here are the main ways that Brexit has affected UK businesses. 

Exporting Issues: 

Although the UK did manage to secure the agreement with the EU, that our businesses could continue trading tariff- free post-Brexit, there are some complications that are aligned with this. Exported goods have to meet a set of specific and complicated criteria in order to qualify. The criteria includes: 

  • Must be able to prove the goods are produced in the UK.
  • If the goods are agricultural produce it must be proven they were grown on UK soil.
  • If they are not grown on UK soil, it must be proven that they have been ‘significantly changed’.

As you can probably imagine, the paperwork to meet the regulatory requirements for trade-free exportation takes a lot of time and costs money therefore, businesses have been struggling to trade as much as they did before Brexit. 

Reduced Labour: 

Due to Brexit bringing an end to free movement between the UK and the EU, businesses that often relied on cheap labour have now had that luxury removed. This has resulted in businesses only being able to afford a smaller labour force . 

Furthermore, since January 2021, non-UK citizens have been required to own a work visa. Therefore, in order to work in the UK these non-Uk citizens will require UK businesses to sponsor them which is an additional cost. 

Disruption in the Supply Chain: 

Due to Brexit being a drawn out process, a lot of businesses predicted the supply chain issues and decided to stock up on the products that their businesses require. The aim of this was to avoid any additional costs and the tariffs that were being implemented as part of leaving the EU. This causes a huge delay in supply and has also now resulted in some businesses having excess stock that they cannot necessarily sell. 

Business Forecasting at ARB Accountants 

If you are a business owner who is struggling with recovering from the impact of Brexit and require some support from an experienced accountant, then ARB Accountants is ideal for you. Our Business Forecasting service can help you to plan for your financial future and identify areas where you could improve your finances, as well as monitoring your spending on areas such as exporting. 

Whether you are a sole trader or small family business, ARB Accountants is here to support you and your Business Forecasting needs. If you have any questions, don’t hesitate to get in touch by clicking here. 

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