HomeanalysisWhich Sectors Will Struggle Most Post-Brexit and Why?

Which Sectors Will Struggle Most Post-Brexit and Why?


brexitNo one can truly predict the outcome of Brexit and how the various industries in the UK will be affected. If we could make such predictions, we would all be millionaires. We know remaining in the customs union would work favourably for industries trading in goods, but it wouldn’t mitigate the potential impact on the financial services sector.

Different scenarios will have a different potential impact on different industries. Preparedness of businesses will also have a strategic impact. Weathering the Brexit storm, contingency planning and worst-case scenarios should be top of the agenda in every business boardroom.

The effect of Brexit on supply chains, staffing and recruitment, and the potential exodus of foreign businesses with operations in the UK are particularly worrying, as is the weakness of the pound. We walk into unprecedented times.

Knowing what we do so far, which industries look set to struggle most post-Brexit?
A report in the Financial Times earlier this year revealed the 5 sectors Brexit is likely to hit the hardest. These are financial services, the automotive industry, agriculture, the food and drink sector, and chemical and plastics. Here’s a round up of each sector and a snapshot of some of the impacts Brexit is likely to have.

Brexit and financial services

Leaving the EU has significant implications for the financial services sector. The debate so far (there is no knowing what lies ahead) has focused on whether banks and other financial institutions will stay in London or go. Continued passporting is at the crux of the matter and will determine the outcome.

A loss of passporting rights would be catastrophic, but it has implications for the EU too. A report by Reuters determines “The EU is unlikely to turn off the tap to UK financial services after 2020 as it needs to build up its own capital market after decades of City dominance.”

Needless to say, the financial services sector is vital to the UK economy. Over 2 million people are employed in the sector and it is also the UK’s largest tax payer. Financial services are also the UK’s biggest export industry. Last year the financial services export market was worth a record £26 billion.

The hospitality industry

Brexit will cause a shortage of at least 60,000 hospitality workers per year according to research conducted by Planday and YouGov. In addition, there are major concerns about food and drink imports, which the hospitality industry relies on. The impact of Brexit on the overall economy may also hit the hospitality industry with a knock-on effect on the budgets of consumers.

The automative industry and Brexit

The automotive industry is one of the UK’s manufacturing success stories. The £82 billion industry accounts for 13 per cent of Britain’s exports. But, with its reliance on integrated supply chains, how will it fare after Brexit? Alongside the slump in diesel sales, Brexit is certainly making key players in the industry jittery.

John Neill, chief executive of Unipart wrote earlier this year that he fears hard-line Brexiteers are in danger of destroying the British car industry. Neill’s biggest worry is not tariffs, but the potential delay in the finely tuned supply chain between the UK and the continent.

Ralf Speth, CEO of Jaguar Land Rover (JLR), warned the UK government earlier this year that a hard Brexit could cost JLR £1.2 billion per year in tariffs and force the business out of the UK. More recently, Speth said tens of thousands of jobs in the automotive industry are at risk if there is a cliff-edge break with the EU.

Brexit and agriculture

Leaving the EU will have significant implications for the agriculture sector in the UK. After Brexit and any transition phase, UK farmers will be operating outside of the EU’s Common Agricultural Policy (CAP). This means a new domestic agricultural policy will need to be implemented.

As CAP currently provides nearly £4 billion of support to farmers each year, will the UK government continue to offer financial support? There is also the question of regulation regarding animal welfare, food safety and pesticides. An article published by the Chartered Institute of Environmental Health states a no deal Brexit could negatively affect food safety, public health, consumer protection, animal welfare and environmental sustainability.

The National Farmers Union (NFU) has warned of a catastrophic wait to be approved as an EU food supplier if no deal is struck. A no deal Brexit could see tariffs on exports and a danger the UK would be flooded with cheap food of poor quality.

The chemicals and plastics industry and Brexit

The chemicals industry in the UK is the second biggest manufacturing industry and the second largest exporter to the EU. The UK’s chemical industry could be hard hit by leaving the EU customs union, with non-tariff barriers to trade being cited as a particular problem.

The European Chemical Industry Council (Cefic) and London-based Chemical Industries Association have raised concerns about the UK’s possible disengagement from the European Chemicals Agency. The chemical bodies are concerned that establishing a separate UK agency could take years to achieve at significant cost. The industry also relies on having access to international skills on a flexible basis.

Plastics is fundamental to the UK economy and is one of the UK’s top ten imports and exports. The plastics industry turns over £25.5 billion, but it relies heavily on trade with the EU (69 per cent of the UK’s plastics trade is with the EU). The industry also needs to maintain regulatory equivalence between the UK and the EU. In addition, around 10 per cent of the plastics industry workforce in the UK are from the EU. A hard Brexit would impact significantly with astronomical cost implications.