The UK decision to leave the European Union last June is continuing to affect families and businesses across the country. The main cause of concern for many is that the final exit deal is still being decided. With no end in sight it is becoming more likely that the UK will follow a hard Brexit when it leaves the EU. With the average annual salary in the UK at £27,600 in 2015, we look at the consequences of a hard Brexit on families.
The EU referendum vote in 2016 sent shockwaves across the financial sector. Immediately after the vote, the sterling declined by 10% against the dollar. Its value fell to a 31-year low on currency markets, and was recorded to be the biggest one-day loss in the history of the currency.
For UK-based families, Brexit’s initial effects could be felt in the country’s workforce. The Verdict reported that because of the EU referendum vote, some of the country’s major international firms are moving out of the UK. This in turn would leave locals with less options in choosing a career path to support their families. Some of the companies that will exit the UK are Deutsche Bank, Barclays, Microsoft, Lloyd’s of London, Diageo, and several gaming companies. If a hard Brexit does happen more companies will either follow suit or be forced to close down.
Apart from fewer job options, economists foresee that things will get worse if the UK government opts for a hard Brexit over a soft Brexit. FXCM state that by following the hard Brexit option the country will leave the Single Market and remove itself from the jurisdiction of the European Court of Justice. Below are some possible scenarios that a hard Brexit would bring.
Energy prices will be much higher
Energy prices already increased to a 9-month high last year due to Brexit. The country’s gas and power industries have been affected by heavy infrastructure maintenance and unplanned shutdowns. The price of gas increased by 29pc over the second quarter of last year, while wholesale electricity prices by 25pc.
“UK energy prices were boosted early in the quarter with supply concerns for both gas and power, and rose further towards the end of the quarter with shifting sentiment over the EU referendum,” states the ICIS’ 2016 report.
Energy prices, of course, may worsen during a hard Brexit because infrastructure maintenance would be higher due to a weaker sterling.
Retail prices will climb further
Already, there is evidence that large and small retailers have been passing the extra costs onto consumers. Apple raised the prices of its gadgets, while Toblerone made its chocolates smaller in order to offset costs.
The Independent claims that 80% of UK consumers are concerned about the price increase of goods and services, with the biggest issue being the rise in the cost of groceries.
More restaurants will close down
The same Independent article reported that 20% of UK-based restaurants are at risk of bankruptcy. That’s 14,800 less choices for families when eating out. If a hard Brexit happens, the number of restaurants at risk of closure may increase.
The decline of the sterling’s value is to blame for the impending bust of restaurants, with the rising cost of imports draining the restaurants’ revenues. In addition, the national government’s decision to increase the National Living Wage to £7.50 for workers aged 25 and up, also added pressure to restaurants that are trying hard to make ends meet.
Celebrity chef Jamie Oliver was one of the first entrepreneurs to experience Brexit’s effects when he closed down 6 of his Italian restaurants in the UK. The uncertainty brought about by Brexit, along with price increase of some of the ingredients that he buys in Italy, were the reasons for the closure of his businesses.
Travelling won’t be as cheap
A hard Brexit will also make things harder for UK families going on a holiday. Airlines that capitalise on the open skies arrangement between EU member states will most likely be affected by it. One way this will affect travellers is that airlines may have to charge higher prices for UK citizens as they will not be covered by the arrangement.
In addition, extra travel documents from UK citizens that weren’t needed before may be asked by EU-member states. Acquiring additional documents will in turn add extra cost to travelling.
Lower purchasing power
The price of the sterling was valued at £1.12 against the dollar before Brexit. However, after the vote, the currency has been on a downward spiral, depreciating by 13.24% just a month after the vote.
Today, the sterling is recovering quite nicely, with a £1.33 value against the dollar. This correction, however, may be short lived if the UK government chooses a hard Brexit. With higher taxes on imports and travel, as well as a poor sentiment among investors towards the sterling, the UK’s currency may break its record of an all-time low in 2019. Currently every government announcement that hints at a soft exit increases the value of the sterling, while indications that the UK will leave without a deal causes the value to drop.
The uncertainty that Brexit brings to British citizens is worrisome. A soft Brexit seems to be the more appealing choice for those who want to keep the cost of living in the country low. However, should a hard Brexit happen, families must brace themselves for higher expenses and they will have to adjust their way of living.
Family Relationships Magazine has several techniques for families to save money in our article ‘The Busy Family’s Ultimate Guide to Saving Money’. It has tips on how to save costs on energy, groceries, and money – all of which could be seriously affected after a hard Brexit.