ECB: Brexit weighs on UK trade and labor market

He European Central Bank (ECB) considers that “Brexit has been a drag on UK trade and has contributed to a drop in job supply.

In an article in their economic bulletin, published this Friday, economists from the ECB Katrin Forster-van Aerssen and Tajda Spital analyze recent developments in the UK’s trade and labor market almost two and a half years since the country signed its post-Brexit trade deal with the European Union (EU).

“The available evidence suggests that the Brexit it has been a drag on UK trade and has contributed to a drop in labor supply, both of which are likely to affect the country’s long-term growth potential”, say the ECB economists.

The Trade and Cooperation Agreement between the EU and the United Kingdom (TCA) was signed on December 30, 2020 and provisionally entered into force on January 1, 2021.

The exit of the United Kingdom from the single market and from the customs union of the EU represented a profound change in economic relations, which “It would foreseeably have an impact on trade flows between the two areas, but also on migratory flows, foreign direct investment, regulation, the financial sector, science and education, and other areas of the British economy.”, adds the ECB.

“Brexit has caused a significant reduction in trade between the EU and the UK in both directions which, however, could recover to some extent over time, once UK and EU businesses have fully adapted to the new environment”, according to the monetary entity.

The weight of trade in terms of gross domestic product (GDP) has also decreased and some small and medium-sized companies in the UK have stopped trading with the EU.

As for the labor market, add the economists of the ECB“there is evidence that the end of the free movement of EU citizens has also contributed to the sharp increase in labor shortages recently observed, especially in sectors with less-skilled workers”.

However, the drop in the activity rate in the United Kingdom It has also been due to other factors, possibly more important.

The ECB adds that there is considerable uncertainty about the long-term implications, including the extent to which the slowdown in trade and migration of the EU they could affect potential labor supply and future productivity.

Source: EFE