The Impact of Brexit on the UK Retail Industry and Government Response

This essay analyzes the multifaceted impact of Brexit on the UK retail industry. It explores the economic consequences, including increased costs, labor shortages, supply chain disruptions, and foreign exchange volatility. The essay details how Brexit has affected the ability of retailers to import g...Read More

THE FUNDAMENTALS OF
ECONOMICS
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TABLE OF CONTENT
INTRODUCTION..........................................................................................................................4
ESSAY............................................................................................................................................4
Impact of Brexit on retail industry of United Kingdom and Government intervene to address
market inefficiencies for better outcome....................................................................................4
CONCLUSION...............................................................................................................................8
REFERENCES................................................................................................................................9
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INTRODUCTION
Economic is branch of social science that studies related to the way people interact with
each other’s, especially in terms of production, distribution and consumptions of good and
services. Retail sector of United Kingdom is one of the growing industry that consist of 5% of
gross value added in UK economy. TESCO, SAINSBURY, WALMART and MORRISON are
four biggest retailers operating in UK to earn high profit margin and revenue. Brexit is one of
the policy that has negatively impacted on growth and expansion of firm as most of the sales of
UK is with European Union. Thus with exist of UK from EU membership has resulted in
decrease in sales and growth of economy. This report has covered crucial information related to
impact of Brexit on retail industry of UK. Along with it, has include detailed pertaining to
whether the government needs to intervene in order to address the market inefficiencies and
what are possible government policies and their impact on economy.
ESSAY
Impact of Brexit on retail industry of United Kingdom and Government intervene to address
market inefficiencies for better outcome
Brexit is one of the policies that has been made by the government which has resulted in
withdrawal of United Kingdom from European Union. Before the brexit, UK was able to sell its
products and services to EU without paying the taxes so there was not much limited pertaining
to the trade. As the name suggested Brexit is “British exit” from EU, it has been initially started
when UK has vote to leave EU on June 23, 2016. In addition to this, retail industry has
contributed in generating total value of £358 billion sales in 2016 and lead in employing more
than 3 million people in UK. At the same time, it has also been identified that 1/3 of proportion
of consumer spending is through retail industry (Shtompel, 2018). Moreover, around 60% of
import of raw material or product are imported to UK from European Union. So, it can be stated
that the Brexit has negative impact on overall retail industry of UK which can be explained in
detailed as follows:
Firstly, most of the retailers make purchase of their products and services from EU but with
implementation of brexit, UK has to make more payment in order to import goods into country
for satisfaction of customer requirement. Thus, it has result in increasing overall cost of
products, lower profit margin and decrease in sales volume and profitability. Moreover, the UK
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economic has suffered recession due to Brexit thus company needs to have a contingency plan
so that it can easily cope with the current situation. Thereby find alternative method that could
be used by the company to grow and sustain business operation in competitive environment or
retail sector of UK (Cullen and Kerr, 2020).
Secondly, the retail sector has to face shortage of labour that are responsible for
performing different task and activities in retail store. As many of the companies were unable to
access the worker from various parts of the EU. Before brexit the people can easily move from
UK to other parts of EU but afterward there has been restriction which lead in limited access to
labor or employees. Thus, there are firms that have limited number of people or staff to complete
several task so that qualitative and better services can be rendered to customers thereby it will
finally lead in increasing overall labor cost (Cuadros, natalie, 2018). Supply chain of retailers
has been affected with impact of Brexit as they have to reassess the supply chain and sourcing
agreement to have goods and services to deliver to customers. Moreover, the Brexit has provided
opportunities to retailers to buy products from cheapest market as the tariff will be imposed on
import will be less as compared to place by the EU.
Fourthly, it has been identified that brexit result in increasing foreign exchange volatility,
interest rate risk and counterparty. Or more rate of interest has to be paid by company to
government in order to sustain and promote their business operation in external environment for
longer time frame. Thereby, increase in interest rates will lead in increasing overall cost and
decrease in profit and sales of firm. Even after the Brexit the retailers have to abide to the
regulation, policies and standard that has been set by the EU in order to avoid problem while
trading with EU (Elsayed and Abdelrhim, 2021). So, it can be stated that UK has not being
completely free from EU regulation in selling of its products and services in EU member
countries. Moreover, the UK have get opportunity to sell its products and services when the
price sterling in abroad or international market so that the retailers can earn high profit margin
and sales volume. Thereby company have chance to expand their business operation in
international market to exporting its products where it can get maximum value so that it can
enjoy huge revenue or profitability.
Along with it, Brexit is uncertain or not predictable event, that is many of the owners of
the company are unaware about its thus they are facing challenges in finding strategies that
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could be used to cope up with the same. The demand of products and services has decreased
because individuals do not have sufficient income to purchase the same in order to fulfil their
respective needs. Furthermore, brexit has resulted in reducing overall investment and
employment opportunities or growth in society. As with increase political instability and market
uncertainty companies are able to plan a particular strategy that could contribute in effective
operation of business and achievement of end goals in effective manner (Oxford Analytica,
2019). There are many individuals or citizens of EU that are working in UK which have to
return back to EU because of implementation of brexit. Thus it has lead harder of retailers to
recruit people that have sufficient skills, capabilities and more knowledge to complete work in
most effective manner. Finally, it leads in wage inflation as existing employees started
demanding more salary or wages to do particular work in the firm that result in increasing
overall cost of the firm and price of products provided to customers.
It has also been identified that Brexit has resulted in impacting the overall ability of
United Kingdom to access the finance or sufficient fund so that all operation can be smoothly
completed in external environment. As there are less number of people or investors that are
interest to invest their capital in the business due to market inefficiency and uncertainty. In
addition to this, there are many companies operating in retail industry of UK with impact of
brexit has cease their expansion or invest (Thompson and McLarney, 2017). Because most of
the companies does not have confidence that whether it will able to get maximum return or not.
While, there are many companies such as Tesco, Sainsbury that have effectively cope up with
the situation through changing their existing strategies, set of action as per the existing policies
and procedure of the government of UK. Thus it has helped them in retaining their market
positioning as they have change their method as per market condition.
Firm have started focusing on strategies such as customer’s centricity, cost extraction
and efficient in order to get maximum outcome in minimum input. Likewise, they have started
emphasis on providing more personalized and better shopping experience to customers so that
their needs can be fulfilled and they are motivated to be part of the particular organization. All
these strategy has lead company in building and retaining relationship with existing and new
customers so that they can enjoy huge profitability and market share (Thompson and McLarney,
2017). For example: with decrease in disposable income and employment opportunities that are
available in external environment. Consumers have started forcing companies to reduce their
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price of products and services so that they can easily make purchase and fulfill their desired.
Thus, in this situation companies like Tesco, ASDA and ALDI are able to survive as they
provide products and services at lower price possible to attract millions of customers and earn
more profit margin.
So, all these are major impact of Brexit on retailers operating in United Kingdom in order to
earn high profitability and market share. Companies as well as government of UK through
making effective strategies or taking key actions is able to cope up with the negative or adverse
impact of brexit. Depature f So, yes the government needs to intervene in order to address the
market inefficiencies or economic recession that has been caused due to impact of Brexit
(Brown, Liñares-Zegarra and Wilson, 2018). Thereby, the plan or intervention or policies that
has been decided by the government to overcome the issue or negative impact of Brexit can be
explained as follows:
United Kingdom government has introduced its own policies and procedure related to trade
and immigration and many more changes that has affected people, business or retailers working
with an motivate to enjoy high profitability. Likewise, the UK government has introduced tariff
free and quota free access to each and every market so that company can easily expand its
business in international market. It has also formulated new customer formalities and regulatory
control between United Kingdom and European thus it is free to implement any trade deal with
the third country. Moreover, from now onwards, the government would not consider any EU
national as preferential treatment and it has plan new point based system with an motivate to
attract skilled workers in the economy for its smooth operation (Lawless, 2020). It has also
contained extensive detailed related to various terms such as future relationship with security,
defence policy and foreign after implementation of brexit. Thereby, these key action, policies
and procedure taken by government are essential for United Kingdom to enhance overall growth
and development of economy.
Likewise, the government have make assumption related to brexit impact transparently so
that the people or companies operating in retail and other sector are aware about its impact and
find method to cope up with the same. Assumption has been made related to investment, trade
barriers and migration, along with it, it has been estimated that overall production of UK will be
affected to most extend because of leaving the EU. So, through making clear assumption it is
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able to find alternative method to resolve the key issue (Lawless, 2020). Furthermore, the
government has more focus on more migration, investment and trade arrangement policies with
non EU countries. Thus, it has helped in understanding the things, people or products and
services can be exchanged between the UK and other countries.
At last it can be stated that Brexit is one of the policy of UK government that has lead in
economic crises which resulted in decrease in overall employment opportunities, GDP of
country and many more. So government in order to promote growth and success of economic
has focused or lay emphasis on making more effective policies and procedure that can motivate
firm to make investment, generate more employment opportunities (Brown, Liñares-Zegarra and
Wilson, 2018). So that people have option to get good job, have better salary and incentive in
order to live a better lifestyle.
CONCLUSION
From the above report there are various things that can be summarised such as brexit is exist
of UK from EU in order to have its own policies and procedure or set of regulation. They belief
that UK economy will grow after Brexit but it results in economic slowdown as there were less
employment opportunities and high inflation rates. So, government in order to cope up with the
market inefficiency situation has make many efforts and policies and procedure that can
contribute in growth and expansion of economy. Thereby it can be summarised that intervention
of government was essential to promote sustainability of UK economy that has been affected
negative due to brexit.
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REFERENCES
Books and Journals
Bloom, N and et.al., 2019. The impact of Brexit on UK firms (No. w26218). National Bureau of
Economic Research.
Brown, R., Liñares-Zegarra, J. M. and Wilson, J. O., 2018. What happens if the rules change?
The impact of brexit on the future strategic intentions of UK SMEs. The Impact of
Brexit on the Future Strategic Intentions of UK SMEs (March 1, 2018).
Cuadros, natalie, 2018. Bremaining in Vogue: The Impact of Brexit on the Fashion
Industry. Am. U. Bus. L. Rev., 7. p.129.
Cullen, R. and Kerr, G. N., 2020. Fundamentals of Environmental Economics.
Elsayed, A. and Abdelrhim, M., 2021. The Impact of Brexit on the United Kingdom Stock
Market Sectors in Under of the COVID-19 Crisis. Available at SSRN 3825230.
García, C and et.al., 2020. Brexit: Situation and Economic Consequences. Banco de Espana
Article, 40.
Lawless, M., 2020. Ireland, Europe, and Brexit. In Routledge International Handbook of Irish
Studies (pp. 172-187). Routledge.
Oxford Analytica, 2019. EU to United Kingdom moves will fall under any Brexit. Emerald
Expert Briefings, (oxan-db).
Shtompel, H., 2018. Fundamentals оf Economics and Business Organization.
Thompson, J. and McLarney, C., 2017. What effects will the strategy changes undertaken by
next Plc have on themselves and their competition in the UK Clothing Retail
Market?. Journal of Commerce and Management Thought, 8(2). pp.234-264.
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