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Impact of Brexit on Unemployment, Inflation, and Wage Growth in Britain

By Emma Pollard and Wilson Montjoy

When Britain’s Prime Minister Theresa May initiated the two year process of leaving the European Union on March 29, 2017, many members of the British government feared an immediate economic crisis. Instead, the UK economy, which grew approximately 1.8% during 2016, continued to grow at the same rate in 2017. Inflation rates rose to 3.1%, which is the highest in six years, but unemployment rates have continued to fall. In August 2017, British unemployment was the lowest it had been in 42 years at 4.4%. However, these record-low rates of unemployment are not as great as one might think. The very low rate of unemployment is resulting in lower pay, because the number of people at work is at a record high. This decrease in income, caused by the fact that price inflation is still rising at a faster rate than wages, has caused an major slowdown in economic growth. Additionally, given the uncertainty of the future repercussions of Brexit, companies have been hiring more people instead of buying new technology or equipment, ultimately slowing down economic growth.

Source: BBC and CNN

British unemployment reached a 42 year low in August 2017
United Kingdom Inflation and Wage Growth following Brexit

 

Source for Graphs: CNN Money

 

Although many anticipated that Brexit would cause economic upheaval, the Post-Brexit changes to inflation, wages, and unemployment are quite tame when compared to the changes seen in the Great Recession. In 2008 the the United Kingdom’s unemployed population increased by 33%. During this same period inflation grew by 12.5%, greatly outpacing the 1.5% by which wages increased. In 2009 the growth of the unemployed population slowed down, growing only 3.46 percent. In the meantime inflation exploded by 61% while wages only grew by 3.9%. These numbers demonstrate that while Brexit had brought economic change in the United Kingdom, those changes are significantly less severe that the unemployment and cost of living increases Britain experienced during the Great Recession.

Unemployment, Inflation, and Wage Growth measured according to the percent change each year of the Great Recession

https://research.stlouisfed.org/dashboard/21848

13 thoughts on “Impact of Brexit on Unemployment, Inflation, and Wage Growth in Britain

  1. ingramk20

    I wonder how the lack of investment spending will impact Britain's economic growth? Investment spending is oftentimes linked with recessions; declines in investment spending can have a multiplier effect and and result in declines in consumer spending. I will be curious to see if in the next few years the lack of investment spending continues and how it will impact Britain's growth rate.

  2. bernsteinl20

    The economy of Britain is holding surprisingly strong especially in regards to unemployment, which is not what was forecasted. With other countries who were considering having their own "exit" from the European Union, I am curious as to whether this would hold true or if it speaks to the strength of the British economy. It also makes me wonder how much we should focus on unemployment numbers as a marker of whether our economy is doing well since it does not always show what is really going on, as shown here.

  3. Mariam Samuel

    The ability of the United Kingdom’s economy to stabilize following Brexit shows the size and strength of the economy. Although there short term effects seem to be overall positive ( record low unemployment), I predict this will not be a sustainable trend in the long term. As hinted in the text, the low unemployment, and resulting lower wages, will slow economic growth in order to compensate for the increased workforce size. Lower incomes will also effect the economy as it will mean a decrease in consumption and investment.

  4. prochniaka20

    Though the UK economy is in a better position than expected to be post-Brexit, the high inflation rates seem to be posing a really big issue for the UK economy and should be watched carefully. I wonder if there will be a large negative impact on the economy once the UK officially withdraws from the EU.

  5. dugganj20

    It is interesting to think about how even though unemployment is decreasing, this could negatively impact employees' incomes. Additionally, Britain should think about how their productivity is slowing down due to the choice to hire more people than investing in new equipment and technology. Is there a way to both hire more people and invest in new technology? I think this is ultimately the question to figure out in the issue of boosting Britain's economy.

  6. dodsonm20

    Why do you think the impact Brexit left on the economy was so minimal compared to what people feared it would be? Do you think in the long run the move will prove to be beneficial even though wages aren't increasing at an ideal rate right now? I do like the comparison shown in this post. It highlights how little people still know about the economy because the Great Recession was much more catastrophic yet few saw it coming while Brexit was expected to be terrible for the economy by many and that hasn't quite been the case.

  7. riversc20

    While it is great Brexit hasn't had economic repercussions comparable to the soaring inflation and unemployment rates of the Great Recession, it is still disappointing to hear that wage cuts are what is behind a decrease in the unemployment rate. The highest inflation rate seen in 6 years isn't great either, however, as you stated, many members of the British government expected an immediate economic crisis. I am intrigued as to what Theresa May's main motivations for leaving the European Union were and I think it will be interesting to see what effects Brexit has on Britain's economy in the next few years.

  8. skinnerf20

    These short term results of Brexit are promising based on the drastic fears many had after it was announced. The next few years will ultimately shape the view of May's decision to exit the EU however, through companies' reactions to the policy we see that many factors can lead to economic changes. A point of interest over the next few years will be the decisions other EU members make as to staying or leaving the consortium of nations.

  9. minsong20

    I think it is interesting that all of these effects are from a theoretical action. The details of Brexit are not fully worked out, so no one knows what the effects of the move actually are.

  10. scottm20

    While unemployment has fallen, it is interesting to note the underlying variables that are trending in a less favorable direction. The rising inflation rates and wage stagnation is worrisome for Britain’s long term economic performance. The data, used when comparing post-Brexit changes to the Great Recession, lessen the potential impact Brexit could have on Britain’s labor force and overall economy. Because of the two year 'delay’ process of leaving the EU, the full effects of Brexit have yet to be fully actualized. The early warning signs, particularly inflation rates and stagnant wages as discussed in the blog post, should be closely monitored as Britain enacts the Brexit plan. If economic stability is not a major priority, Britain may begin to experience a recession, which could negatively affect international trade partners and their respective economies. -Griffin Scott

  11. calihanj20

    I don't believe it is the low unemployment that is causing the wages to decrease. The problem super low unemployment generally causes is the lack of suitable candidates for a job opening. This gives the worker more leverage in salary negotiations because there is less competition for the job. This would seemingly cause wages to increase, so I think its likely other factors have caused the stagnant wage growth.

  12. bullr20

    Yuval Noah Harari calls the economy a level two chaos system: speculation about the system affects the phenomena occurring within it. Like you said in your blog post, British industries are hiring British workers at an all time high to prepare for Brexit repercussions, which affects the unemployment rate and long term growth. I wonder what other subtle economic mechanisms are at play in the wake of Brexit. Obviously, uncertainty is abound, which causes people to make poorer economic choices, but what else about this move toward protectionism is influencing the economy...?

  13. the prof

    As a couple of you mentioned, the vote and subsequent Cabinet decision was to leave the European Union, but the UK won't actually be on its own until April 1, 2019. The post-Brexit relationship with the EU has yet to be worked out. What will tariffs be on UK exports to the EU? In the auto industry, they're currently zero, but could rise to 10% (the base tariff) which would lead to factories closing. Or will the EU agree to keep tariffs at 0? Similarly, as a financial center will EU residents be able to work/travel in the UK? Or will getting a work permit prove really hard, and a short-term visit require a visa obtained in advance? After all, a lot of the business is with the EU, and a lot of the workers are from the EU. If they have to go home, London will go into a tailspin.

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