The UK economy – facing a double whammy
The LSE’s Centre for Economic Performance has just published a paper looking at the joint impact of Covid-19 and Brexit on the UK economy. Apart from the short-term shocks, both will have a long-term dampening effect on the UK economy. But they will largely affect different sectors.
Covid-19 has affected, and will continue to affect, direct consumer-facing industries, such as shops, the hospitality and leisure industries, public transport and personal services. Brexit will tend to hit those industries most directly involved in trade with Europe, the UK’s biggest trading partner. These industries include manufacturing, financial services, posts and telecommunications, mining and quarrying, and agriculture and fishing.
Despite the fact that largely different sectors will be hit by these two events, the total effect may be greater than from each individually. One of the main reasons for this is the dampening impact of Covid-19 on globalisation. 
Travel restrictions are likely to remain tighter to more distant countries. And countries are likely to focus on trading within continents or regions rather than the whole world. For the UK, this, other things being equal, would mean an expansion of trade with the EU relative to the rest of the world. But, unless there is a comprehensive free-trade deal with the EU, the UK would not be set to take full advantage of this trend.
Another problem is that the effects of the Covid-19 pandemic have weakened the economy’s ability to cope with further shocks, such as those from Brexit. Depending on the nature (or absence) of a trade deal, Brexit will impose higher burdens on trading companies, including meeting divergent standards and higher administrative costs from greater form filling, inspections and customs delays.
Papers
- Covid-19 and Brexit: Real-time updates on business performance in the United Kingdom
- Preparing Brexit: The scale of the task left for UK business and government
Centre for Economic Performance: LSE, Josh De Lyon and Swati Dhingra (July 2020)
IFG Insight, Institute for Government, Joe Marshall, Maddy Thimont Jack and Haydon Etherington (July 2020)
Articles
- Brexit to cause ‘double shock’ for UK economy regardless of deal, study finds
- Brexit will deliver double shock to UK economy, study finds
- The GDP figures look bad now – but with coronavirus and Brexit set to prove a dangerous mix our problems aren’t over
- Why Brexit and Covid-19 are set to collide
- Brexit thinking poisoned the government’s response to COVID-19
- Brexit plus coronavirus could spell disaster for Britain’s universities
The New European, Adrian Zorzut (20/7/20)
The Guardian, Lisa O’Carroll (28/7/20)
Independent, Vince Cable (12/8/20)
The Telegraph, Paul Nuki (26/6/20)
LSE blogs, Jonathan Hopkin (9/6/20)
Wired, Rachael Pells (13/7/20)
Questions
- Referring to the LSE paper, give some examples of industries that are likely to be particularly hard hit by Brexit when the transition period ends? Explain why.
- Why have university finances been particularly badly affected by both Covid-19 and Brexit? Are there any other sectors that have suffered (or will suffer) badly from both events?
- Is there a scenario where globalisation in trade could start to grow again?
- Has Covid-19 affected countries’ comparative advantage in particular products traded with particular countries and, if so, how?
- The authors of the LSE report argue that ‘government policies to stimulate demand, support workers to remain in employment or find new employment, and to support businesses remain essential’. How realistic is it to expect the government to provide additional support to businesses and workers to deal with the shock of Brexit?