The U.K. has emerged from the Covid-19 pandemic to find itself faced with an onslaught of new economic crises that have left the country in “a precarious position,” experts have warned.
A perfect storm of labor shortages, skyrocketing natural gas prices and global supply chain constraints have put the country in prime position for a difficult winter. Rising demand as economies reopen has created similar problems all over the world, but economists argue that Brexit has exacerbated these issues for Britain.
Labor shortages
A lack of workers is affecting a slew of industries across the country.
Britain has an estimated shortage of 100,000 truck drivers, which haulage organizations have largely attributed to a post-Brexit exodus of EU nationals. The lack of truck drivers has disrupted deliveries, leading to empty store shelves, backlogs at ports and dry gas stations, which sparked a panic buying frenzy in September that lasted weeks.
Other sectors have also warned of deepening labor shortages that are expected to damage the availability and price of goods in the runup to Christmas.
Britain’s National Pig Association has warned that up to 120,000 pigs face being culled within weeks because of a lack of butchers and abattoir workers.
In a statement on Friday, the vice president of the U.K.’s National Union of Farmers said labor shortages across the food supply chain remained acute, while the CEO of the U.K. Warehousing Association said in September that industries including warehousing, engineering and transport were all experiencing severe worker shortages.
At the end of September, the Confederation of British Industry — which represents 190,000 businesses — said its latest data showed 70% of companies were planning pay rises in a bid to tackle labor shortages.
The U.K. government has issued thousands of temporary visas for truck drivers, butchers and agricultural workers, but some critics have argued that this is insufficient to lure foreign workers.
Risk to future growth
Riccardo Crescenzi, a professor of economic geography at the London School of Economics, expressed some skepticism about the solutions being offered by the government.
“Offering three-month [visas] might not work while the rest of the EU is booming because of the injection of resources allowed for its recovery plan,” he told CNBC in a phone call. “And there is not really an unemployment problem in the U.K., so I struggle to see where drivers would come from in the domestic economy.”
Crescenzi said it was hard to know if the issues were temporary. “Some of these shortages could become structural, and this is a problem that can seriously constrain future growth.”
Sam Roscoe, senior associate professor in operations and supply chain management at the University of Sussex, warned that shortages would persist in the U.K. unless there were fundamental changes to the country’s immigration system.
“Brexit was sold as a vote on immigration independence, the U.K. labor market and making sure that everybody in the U.K. had jobs to go to, but the issue is we have 5% unemployment,” he said via telephone. “We’ve lost access to 27 member countries and the labor pool that was once available there, especially in terms of so-called low-skilled labor. I think that definitely puts us in a precarious position.”
Roscoe said it would take years to get enough Brits trained and licensed to drive heavy goods vehicles. “In the meantime, the reality is we’re going to have labor shortages unless the visa rules change.”
Spending power threatened
In a note on Thursday, Credit Suisse economists warned that U.K. consumers “face headwinds in the next few months,” including elevated inflation, supply shortages and the tightening of monetary policy.
“We think real disposable incomes for the U.K. consumer can fall by about 1.5% in 2022, the biggest fall since 2011,” the note’s authors predicted.
Helen Dickinson, head of the British Retail Consortium, told ITV News Thursday that three in five CEOs said they would have to raise prices by the end of the year due to supply chain problems. Some 10% said they had already done so.
Charalambos Pissouros, head of research at JFD Group, said he believed panic buying and supply shortages in the U.K. might also impact spending power by damaging sterling’s value.
“I see the risk surrounding the future of the British pound as tilted to the downside,” he told CNBC. “How severe any further tumble may be depends on how long the situation stays unresolved. Quick responses like the involvement of the British military could restore economic performance sooner than thought and halt sterling’s fall, and this could also allow the Bank of England to proceed freely with its tightening plans.”
It comes as Britain also faces an energy crisis. Several U.K. energy suppliers have collapsed since September as wholesale gas prices climbed to record highs. While the problem has affected markets worldwide, the U.K. is particularly vulnerable because of its reliance on gas; more than 22 million households are connected to the British gas grid.
Meanwhile in Europe — which is also battling rising prices — the European Commission on Wednesday published a “toolbox” that member states could use “to address the immediate impact of current [gas] price increases, and further strengthen resilience against future shocks.”
Crescenzi that the EU can count on the strength of its single market, “which means global shocks like the gas price crisis can be dealt with more effectively with significantly more room for manoeuvre.”
“Following Brexit, the U.K. could still coordinate its response to the crisis with its most important trade and investment partner to ensure the best possible protection for its firms and citizens,” he added. “However, measures put out by the U.K. government remain unclear, let alone a strategy to coordinate with external partners. This is alarming.”
EU-U.K. relations have been under strain in recent weeks amid disputes over the Northern Ireland protocol, a special trade deal introduced to avoid a hard border between Northern Ireland and the Republic of Ireland. Officials have publicly argued on Twitter over the proposals — dubbed the “biggest source of mistrust” between both sides by U.K. Brexit Minister David Frost — and met to discuss proposed changes in Brussels on Friday.
