More than three in five (61%) of firms say Brexit has caused them difficulties, according to The impacts of Covid-19 and Brexit on the UK economy: early evidence in 2021 published today by the Centre for Economic Performance (CEP).
The research finds the most prevalent factors reported by firms relate to issues at the border with the European Union (EU) with 37% of firms reporting delays, 36% reporting additional customs and administration costs and 22% reporting regulatory checks. And it is not only the UK/EU border where problems have arisen; 20% of businesses report increased difficulty in moving goods from Great Britain to Northern Ireland.
Using data provided by the Confederation of British Industry (CBI)* business survey up to April 2021, researchers Josh De Lyon and Dr Swati Dhingra look at how firms are coping with the effects of Covid-19 and Brexit - and find a mixed picture.
“After months of lockdown, optimism is returning to UK businesses as the vaccine rollout and schedule for easing restrictions continue, but Brexit has changed economic conditions for UK firms,” Dr Swati Dhingra, CEP associate and Associate Professor in Economics at LSE, said.
On Brexit, the report shows:
- Overall, 24% of exporting firms report that Brexit has caused exports to the EU to fall; 33% of importing firms report that imports from the EU have fallen.
- 33% say there has been an impact on their costs or prices.
- Larger firms are less likely to report significant falls in imports and exports than smaller firms.
On Covid-19, the report shows:
- There has been a notable increase in economic activity in April 2021, relative to the previous three months.
- Significantly more firms report an increase in business volumes in April 2021 than report a decrease.
- Businesses are also more optimistic about the next three months than they have been since the start of the pandemic – with firms that expect the amount of business and employment to increase, outnumbering those who think it will decrease.
- Overall, business leaders in the survey expect to raise wages in the next year by 1.7% on average, compared with a 1.4% average increase in the past year.
- Average prices are predicted to rise by 0.7%, compared with a rise of 0.5% on average last year.
Josh De Lyon, research assistant at CEP, said: “Investment in both physical and human capital will be crucial to the long-term adjustment to Covid-19 and Brexit. We find that in the manufacturing sector, more firms expect to increase expenditure on worker training and innovation in the next 12 months than to decrease it – a reversal of the situation a year ago.
“But in the services sector, which includes hospitality and retail, firms are less optimistic. Data from January 2021 shows more services firms expected to reduce spending on training than increase it over the next three months.
“Evidence from previous economic shocks suggests that people who remain in businesses or industries hit by the shock suffer more than those who are able to make a transition to other industries. Training programmes and adjustment assistance can help to ease such transitions.”
Dr Dhingra added: “The evidence in our report shows that Brexit played a role in the sharp drop in UK trade in 2021, with a sizeable share of firms experiencing issues in trading with the EU such as delays at the border and burdensome administrative costs. This has translated into rising costs, higher prices and reduced competitiveness.
“The government should seek to support businesses in the transition to new trading relationships and to ensure that the increase in border costs is minimised.”
The full report can be read here: The impacts of Covid-19 and Brexit on the UK economy: early evidence in 2021
The report is an update of the earlier CEP Covid-19 analysis: Covid-19 and Brexit: Real-time updates on business performance in the United Kingdom
*The research is based on a sample of around 600 firms per month