In the wake of Boris Johnson's Brexit decision, the UK is bracing for a potential "Winter of Unhappiness," echoing the economic downturn of 1978/79. The nation is grappling with a multitude of hurdles, including supply chain disruptions, soaring food and energy prices, and a workforce scarcity.
Among the major economies, the UK is bearing the brunt of Brexit's consequences. The Brexit-inflicted immigration policies and exclusion from EU markets exacerbate the employment difficulties for UK businesses, particularly in retail and hospitality sectors. This labor crunch escalates business operation costs, adding to the sector's woes.
The predicament is further compounded by Brexit-induced supply chain challenges. The disruptions have inflated food and fuel prices, making it challenging for the UK to secure essential supplies from the EU. This has resulted in temporary shutdowns of businesses in the food, hospitality, and logistics sectors.
According to the Office for National Statistics, over a million job vacancies were reported between June and August in the UK. Consequences of this labor deficit have pushed restaurants, bars, and supermarkets, including Nando's, to temporarily close certain outlets due to workforce shortages or supply constraints.
The elderly care sector, as per Care England, is experiencing a "workforce crisis" and requires foreign labor to fill tens of thousands of vacant positions.
The supply chain issues have been made worse by Brexit, leading to fuel and food shortages for consumers, even as support measures for the pandemic wane, like wage subsidies and income boosts.
In response to the labor shortage crisis in the logistics sector, the UK government partially retreated from its strict Brexit immigration policy, planning to issue temporary visas for 10,500 foreign LGV drivers and workers in the poultry industry. However, industry groups have expressed skepticism about the effectiveness of this measure, as it remains unclear whether EU workers will return to a perceived hostile country.
Brexit has intensified the Fahrermangel, leading to the departure of thousands of EU citizens from their jobs and other professions in the UK. Johnson's decision to terminate worker free movement during the pandemic further hampers the return of Europeans to the UK.
Many individuals have the right to stay in the UK, but they often feel unwelcome, according to L. Alan Winters, Director of the UK Trade Policy Observatory at the University of Sussex. He attributes this issue to the Brexit-related process, with Covid-19 serving as the tipping point.
The labor deficit is a significant challenge for various industries, which have relied on continuous workforce inflow from the EU for over four decades.
Richard McGregor-Smith, Chairman of the British Chambers of Commerce, suggested that a contingency plan should have been in place from the beginning to ensure a smooth transition without interruptions in services and supply chains.
A major British clothing retailer warned that it might suspend operations before Christmas due to difficulties in recruiting seasonal warehouse and logistics personnel unless immigration policies are relaxed.
The company added that "for months, there have been predictions of an LGV driver shortage."
Farmers and food manufacturers are forced to reduce production or discard crops due to a lack of sufficient workforce, resulting in reduced selection in supermarkets and sometimes empty shelves.
UK sectoral leaders have expressed concerns in a recent announcement. Richard Griffiths, Chairman of the British Poultry Association, pointed out that the workforce problems have long been a topic of debate in the food and drink industry. Nick Allen, Chairman of the British Meat Processors Association (BMPA), revealed that many farmers abandoned turkey production due to the unstable labor force availability and uncertainty over monetary rewards.
Data from the Shopping Technology Platform Adimo, which tracks consumer interest in 300 brands in UK supermarkets, indicates that the proportion of out-of-stock products has reached its highest level since March 2020, when consumers stockpiled groceries amid the soaring cases of coronavirus. Adimo anticipates Britons to confront a greater food scarcity before December 1 than during the peak of the pandemic last year.
Adimo's head, Richard Kelly, stated that food and drink categories like alcohol, dairy products, meat, and frozen food will be most affected by scarcity and price increase due to weak selection and rising supply chain costs. Allen added that wage increases in agriculture and food processing industries to attract more domestic labor will eventually lead to higher prices for consumers.
Besides the escalating food prices, the UK is grappling with surging energy costs due to reduced gas and power supplies. This challenge is partly due to the cold spring weather in the beginning of the year, which amplified demand from China and reduced deliveries from Russia.
The collapse of a natural gas producer in the United States resulted in the halt of production in the UK, causing a break in the supply of CO2 used for livestock stunning, fresh food packaging, and carbonated beverages. This gas is also essential for preserving food like prepared meals and frozen goods.
Though this issue isn't directly linked to Brexit, the minimal EU trade agreement negatively impacts the UK's capacity to address this issue independently, as the agreement lacks energy pacts.
While European countries are also grappling with escalating energy prices, the situation is particularly acute in the UK. The country faces challenges due to the lack of large gas storage facilities, delays in repairs, and fires that damaged power lines in France, further complicating gas delivery.
Economists warn that the prolonged upward pressure on prices due to labor shortages, supply chain disruptions, and soaring energy costs will hamper economic growth in the UK and drive up inflation, which is currently at its highest level since the 1990s.
The UK economy has yet to recover to its pre-pandemic size, with economists from Berenberg recently adjusting their rebound forecast for the second quarter of 2022. In contrast, the EU is expected to regain its pre-crisis level of economic activity by the end of the year, highlighting the contrasting trends since the Brexit vote in 2016.
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Brexit has brought forth numerous challenges across various sectors in the UK, including fuel, food, and labor. Below are the specific challenges and their effects on businesses and consumers:
Fuel Sector
- Carbon Market Disruption:
- ETS Linking and CBAM: The UK's Emissions Trading System (ETS) is smaller and less developed compared to the EU's, leading to lower carbon prices and reduced revenue for the UK's clean energy sector. This disconnected market fails to incentivize decarbonization in the UK, potentially losing up to £10 billion in revenue between 2025 and 2030 if not aligned with the EU ETS[1]. Moreover, the UK's lower carbon prices compared to the EU's could make UK exports to the EU less competitive, as they would face additional carbon costs under the EU's Carbon Border Adjustment Mechanism (CBAM)[1].
- Energy Cooperation:
- Internal Energy Market (IEM): The UK's departure from the EU's IEM has disrupted efficient flows of electricity and gas across European borders, potentially leading to higher energy bills and lower Treasury revenues unless closer cooperation is established[4]. Moreover, the loss of full membership in North Seas Energy Cooperation (NSEC) has limited the UK's participation in collaborative renewable energy projects, impacting its ability to fully capitalize on emerging clean energy technologies like hydrogen and carbon capture, utilization, and storage (CCUS)[4].
Food Sector:
- Border Inspections and Safety:
- Post-Brexit Delays: Delays in implementing border checks on imported food have allowed diseased meat to enter the UK, resulting in salmonella outbreaks and poisoning hundreds of people, including children[2].
- Lack of Inspection: The absence of robust border controls has exposed British consumers to contaminated meat, emphasizing the need for rigorous inspection systems to maintain high food safety standards[2].
- Trade Disruptions:
- Export Decline: UK food exports to the EU dropped by 16% post-Brexit, with small and medium-sized enterprises (SMEs) experiencing disproportionate effects due to increased bureaucracy and costs at ports like Dover and Calais[5].
- Consumer Confidence:
- Inflation and Tariffs: Persistent inflation and US trade tariffs are expected to negatively impact consumer confidence and endanger growth in the food and retail sectors, leading shoppers to reduce their grocery and eating-out spend[3].
Labor Sector:
- Supply Chain Resilience:
- Adaptations and Diversification: Businesses have adapted by increasing stockpiling, warehousing, and using more UK suppliers to mitigate border disruptions. This shift towards nearshoring and supplier diversification has bolstered supply chain resilience but also increased costs[5].
- Labor Costs and Demand:
- Out-of-Home Sector: Inflation is particularly rising in the out-of-home sector, where labor costs are increasing alongside labor demand, putting pressure on food businesses[3].
Overall Impact:
- Economic Stability: The UK's economy is predicted to remain subdued in 2025 due to US trade tariffs and muted consumer confidence, threatening any chance of growth in food and retail sectors[3].
- Regulatory Compliance: The long-awaited extended producer responsibility scheme will see manufacturers shoulder the costs of environmental impact, adding to the pressures on food businesses[3].
