Effect of Brexit on the Supermarket Industry in the UK.

Abstract

The BREXIT process has had a severe effect on the economy of the UK. Initially, the economy experienced a decline in the value of the currency and a rise in the level of inflation. Although these aspects of the economy have stabilized, the UK continues to experience various problems concerning its economic performance. In this regard, it is vital to examine the effect that BREXIT will have on the economy by focusing on a specific sector. The aim is to examine the impact of BREXIT on the supermarket industry. The current analysis was intended to evaluate this issue through a descriptive research design that relied on qualitative and quantitative data gathered from government agency reports. The information collected in the research shows that the price of commodities has been rising since the BREXIT vote, and the increase in prices will affect the supermarket industry by reducing the demand for goods and services. In addition, the supermarkets are likely to face higher costs as the employees necessitate higher wages to enable them meet the greater cost of living. The supermarket industry is also likely to experience a decline in the rate of growth. The higher prices will motivate consumers to purchase the essential commodities that will lead in the revenues of the supermarkets. In this regard, the industry will have problems generating the income required to finance investments.

Introduction

On the 23^rd of June 2016, the United Kingdom, through a vote, chose to cease being a member of the European Union (EU) which is commonly known as BREXIT (BBC 2016). As soon as the decision was made, it was clear that it would have a far reaching impact on the economy due to the wider market that the membership of the EU provided to businesses in the United Kingdom. According to Schomberg (2016), “UK exit (Brexit) would be a major negative shock to the UK economy, with economic fallout in the rest of the OECD, particularly other European countries.” Therefore, the resolve to renounce EU membership has considerable economic implications for various industries in the economy of the United Kingdom. The goal of this research is to examine the effect of BREXIT on a particular industry in the UK economy, namely, the supermarket sector. The intention is to understand how the supermarket industry has been affected since the people of the UK voted to withdraw the country’s membership in the European Union.

The economic consequences of the UK’s decision require some assumptions (Dhingra et al. 2016). First, the assumption is made that the country will not be successful in negotiating trade agreements with the European Union after the complete withdrawal. In this case, the UK is likely to experience increases in the cost of trade with the EU (Koutrakos and Snell 2017). The higher expenses would arise from a variety of factors, for example, higher tariffs to export goods to the EU market, increased non-tariff barriers as the EU tries to protect some of its industries, and the UK may not be included in future steps taken by EU member countries to become more integrated (Dhingra et al. 2016). Therefore, there is a need to examine the economic implications of BREXIT on the UK, and the best way to undertake such an analysis is to focus on a particular sector of the economy.

The major issue that arose from the BREXIT vote was the accessibility of the market. The formation of the European Union guaranteed the member states unrestricted movement of labour and goods within each country that was a member of the block (Loannides 2014). However, the countries that were not members of the EU did not have the same access (Tetlow and Stojanovic 2018). In this regard, the vote to withdraw from the United Kingdom from the EU meant that the UK would receive the same treatment as the non-member states. Although the process of withdrawing from the EU is gradual, the economy has started feeling the effects (Ip 2016).

Problem Statement

The European Union remains the largest trade partner of the UK (Dhingra et al. 2016). An estimated half of the trade that the UK undertakes in the international market is obtained from the European Union (Partington 2019). The membership of the EU has allowed the country to reduce the cost of trade with the EU due to the lower tariffs and free movement of goods and people within the region through the creation of a single market (European Union n.d). However, the decision to leave the UK is likely to lead to the country losing the preferential treatment it enjoyed as a member of the EU (Tetlow and Stojanovic 2018). The decision to leave the EU will lower trade between the EU and the UK because of the higher tariffs and non-tariff barriers that the country will face in case it fails in its negotiations (BBC 2019a). However, evidence shows that the UK will enjoy a reduced expenditure in the form of its contribution to the budget if the European Union (Dhingra et al. 2016).

The lower trade between the EU and the UK poses several challenges for the retail market, where the supermarket industry belongs. First, the withdrawal will affect the free movement of people into the UK since the country will no longer be subject to the policies of the European Union (BBC 2019b). As stated, the European Union was beneficial to member states since it allowed the free movement of labour and goods (Loannides 2014). The free movement of labour provided supermarkets with a source of cheaper labour. The UK offers higher wages compared to other countries in the European Union (Gyes and Schulten 2015). The higher salaries offered in the United Kingdom compared to the other EU states has led to an increase in the supply of labour that started to reduce the wages benefitting businesses through lower costs (Gyes and Schulten 2015). As a result, the withdrawal from the EU will affect labour movement that will lead to reduced access to cheaper labor for the supermarkets.

Second, the Brexit vote is likely to reduce the trade level with the EU. As stated, the EU is the largest trading partner of the UK (Partington 2019). The lower trading with the country would lead to the country experiencing significant challenges in its import-export deficit (Koutrakos and Snell 2017). As a result, it may lead to growing importation with a reduction in the export. The situation would likely affect the value of the currency as the British Pound begins to weaken (Dhingra et al. 2016). A weaker currency means increased costs of business that would increase the inflation level in the economy (Dhingra et al. 2016). On its part, the higher inflation will affect the level of consumer spending as people begin to spend their money on the essential commodities (Bresciani-Turroni 2013). Therefore, BREXIT has far reaching implications for the economy of Britain and the supermarkets that operate in the county due to the potential of lower consumer spending occasioned by the loss of the value of the British Pound.

The numerous problems that may occur after the UK withdraws from the European Union make it necessary to examine the implications of BREXIT on the economy of the country. As mentioned, the most effective approach to the analysis is to focus on a particular industry within the economy of the United Kingdom. The reason for the approach is to the wide nature of the UK’s economy that makes it difficult to assess the subject from the perspective of the entire UK economy. Such an approach would involve gathering information from various reports that would lead to difficulties in the evaluation of the data. As a result, the researcher finds it necessary to focus on a particular industry to understand the implications of BREXIT on the sector. In this case, the goal is to collect information on the consequences of BREXIT on the supermarket industry in the United Kingdom.

Aim and Objectives

The overall aim of the current study is to identify and evaluate the impacts of BREXIT on the supermarket industry in the United Kingdom. In order to achieve the goal, the following research objectives will guide the research process.

To identify what laws will be changed once the UK is officially not obligated to abide by the EU laws concerning trade, in particular the free trade between EU member countries and employment through free movement of labor.
To measure the costs of goods and services in the supermarket industry before BREXIT, showing the comparison of the changes since 2016 that will continue after 2019 when the withdrawal from the EU is expected to be finalised as the value of the pound decreases.

Research Questions

What laws should be changed once the UK is officially not obligated to abide by the EU laws concerning trade, in particular the free trade between the EU member countries and the employment through free movement of labour?
What are the cost of goods and services in the supermarket industry before BREXIT and after BREXIT comparing the changes since 2016 continuing to 2019 when the withdrawal from the EU is expected to be complete as the value of the pound decreases?

Significance of the Study

The research is essential to enable the people, government and policymakers understand the implications of BREXIT on the economy of the United Kingdom. The knowledge of obtained from the analysis will help these groups to determine the actions that can be taken to mitigate the economic consequences of BREXIT on the economy of the United Kingdom. For example, the government can determine whether it should allow the continued access of labour to the UK market as a way to enable the supermarkets control their costs so that they can deal with the expected increase in the cost of business due to a weakened British Pound and the anticipated decline in consumer spending (Dhingra et al. 2016; Bresciani-Turroni 2013). Therefore, the conclusions made from the investigation will be vital to the citizens of the United Kingdom, the policymakers and the government.

The analysis is also important for the supermarket industry because it will provide information on the way supermarkets will be affected by BREXIT. Thus, they can use the information to determine the steps they can take to protect themselves from the adverse implications of BREXIT. Furthermore, they can establish what they can do to lobby the government to create an environment that will make their enterprises profitable and sustainable as the country stops being a member of the EU. For instance, the supermarket industry can use the information to encourage the government to create regulations that will provide an enabling business environment. For instance, they can appeal to the government to ease the regulations on labour movement and tariffs for countries that are still members of the European Union as a way to negotiate for BREXIT. According to PwC (n.d), free labour movement has been the cornerstone of the European Union and has enabled businesses to lower the cost of operations. Therefore, the current analysis is essential in understanding the effect that BREXIT will have on the supermarket industry and determining the necessary actions that the government and the businesses should take to protect the sector.

Research Outline

The outline of the study will be as follows. First, the research will offer an introduction that gives background information on the research, the research problem, the aim of the research, objectives and research questions and the significance of the study. Second, the following section will focus on reviewing previous studies on the effect of the economy of the UK stressing the areas that influence the supermarket industry, for example, rise in prices, employment and trade. Third, the study will discuss the methodology of gathering data for the research detailing the nature of information and the sources that will give the information. Forth, the analysis will review data from the different sources that will be identified in the methodology section with aim of making deductions about the effect of the UK’s decision to cease being a part of the EU focusing on supermarkets in the UK. Finally, the report will present conclusions, recommendations and areas for further research in the last section of the research report.

Literature Review

This section of the research report focuses on reviewing previous research and reports on the economic implications of BREXT, specifically the issues that affect the supermarket industry in the United Kingdom. The goal is to provide a solid foundation for the analysis by developing information that will aid the analysis of the data section.

Rise in Prices

Since the United Kingdom took a vote to depart from the EU, the level of inflation has continued to grow moving to the highest level since 2017 (ONS 2017). The impact of the rise in inflation has been a higher cost of living for the citizens. Economists use the Consumer Price index (CPI) as the most effective way of measuring the cost of living and inflation (Diewert, Greenlees and Hulten 2010). The consumer price index is a measure that assesses the weighted average of the prices of a basket of goods used by consumers, for example, food, transport and healthcare (US Department of Labor 2015). The CPI allows economists, the government and policymakers to determine the movement of the prices of various commodities in the economy and understand the rate of inflation. Thus, the CPI is a key measure of the performance of the economy and provides information on the cost of living. However, some arguments concerning the effectiveness of the CPI in measuring inflation exist. According to Morningstar (2011), in addition to the CPI, the ONS measures the Retail Price Index (RPI), and the goods and services covered by the RPI are different from those calculated in the CPI. Notably, the Retail Price Index comprises of items that are related to housing costs, for instance, council tax and mortgage interest payments. The dissimilarity between RPI and CPI is noteworthy. For example, the most recent inflation figures from the UK economy showed that the RPI was at 5.0 percent year-on-year in the month of July, while the annual CPI was about 4.4 percent when compared. The Retail Price Index is used to measure the payments for index-linked gilts (Morningstar 2011). Therefore, the CPI is not a widely accepted measure of inflation leading to the use of alternative methods of determining the level of inflation in economies. Nevertheless, the technique is widely used due to its appropriateness in determining the cost of living by measuring a basket of goods that consumers usually use (US Department of Labor 2015).

According to statistics from the ONS (2017), the Consumer Price Index in the UK jumped from 2.6% to 2.9% in just a month after the BREXIT vote. The problem was blamed mainly on the reduced value of the British Pound (ONS 2017). The decision of the UK to stop its membership of the EU led to significant uncertainty that affected the economic performance of the UK and led to a loss in its currency’s value. The continued loss of the value of the currency means that the level of inflation will increase, and the cost of goods and services at supermarkets will keep rising (Moosa 2014). In this regard, the consumers in the UK can expect that the cost of living will keep growing because they have to pay more for the same commodities that they were using. Thus, BREXIT affects the citizens through increased prices caused by the drop in the value of the British Pound.

The prediction of the state of the economy shows that BREXIT will continue to have an adverse effect on the economy as uncertainty increases (BBC 2017). The decision by the people of the UK to leave the EU will cause friction between the country and the member states of the European Union that will have an effect on the relationship and transactions of business between the two parties (Williams-Grut 2017). Evidence shows that countries adopt protection measures as a way to protect their economies and industries (Irwin 2012). Trade blocks such as the EU reduce the problem by allowing nations to create agreements for their mutual benefit (Koutrakos and Snell 2017). The choice of the UK to leave the EU means that it will be viewed as an outsider that would lead to protectionist policies against it by the other countries in the EU (Williams-Grut 2017). Therefore, BREXIT has economic implications for the UK that will continue to affect the country in the coming years.

The vote to leave the EU was an unexpected event that increased the level of uncertainty in the economy and lowered the expectations of people and investors concerning trade, investment and immigration (Breinlich et al. 2016). The researchers note that immediately after the an announcement was made that the people of the UK had chosen to withdraw from the European Union the British Pound fell by an estimated 10% in its value (Breinlich et al. 2016). On the other hand, the level of inflation increased leading to an increase in the prices of various commodities. However, it is difficult to tell the exact reason for the increase in the inflation level in the economy following the BREXIT vote. Nevertheless, the increased level of inflation indicates that households will continue to face more difficult times in the years to come due to the level of inflation that is expected to continue growing.

Since the vote to leave the EU, the supermarkets in the UK have been steadily increasing the prices of food and drinks. According to the ONS (2017), the prices of foods and drinks have risen by 1.2%. The amount was obtained by evaluating the basket of goods that consumers usually buy on a daily basis, for instance, milk and bread. The rise shows the effect of BREXIT on the prices of consumer goods. According to Schraer (2019), the UK imports an average of 30% of the food from the EU with the rest of the world covering the remaining 10% of imports. If the government does not have a proper deal with the EU, the question of what will occur to the food prices is a major issue. One of the issues affecting the prices of the foodstuffs is tariffs. As a member of the European Union, the countries that exported food to the UK did not have to pay additional tariffs (Koutrakos and Snell 2017). As a result, the foodstuffs reached consumers without the extra taxes that were being levied on products from non-EU member states. However, BREXIT will reverse this trend. The EU countries exporting food to the UK would have to pay additional taxes that will be passed to the consumer (Koutrakos and Snell 2017). In this regard, the costs of foodstuffs in the UK will begin to increase. Schraer (2019) supports this argument by showing that the increasing prices of foodstuffs since the BREXIT vote. The UK Trade Policy Observatory at the University of Sussex observed that the calculated increase in tariffs by 44.6 percent would lead to an 8.1 percent rise in the price of dairy products (Schraer 2019). Thus, the decision to withdraw from the EU will continue to have an effect on the consumer prices.

Businesses may try to absorb the additional costs occasioned by the increase in taxes as a way to safeguard the competitiveness of their products (Schraer 2019). However, their ability to absorb the extra costs cannot be sustained for a variety of reasons. For example, the increase in the number of goods that are subjected to the additional tariffs may make it difficult for the businesses to continue absorbing the costs. Thus, they will have to eventually pass the costs to the consumer (Gillepsie 2013). In this regard, the Consumer Price index will begin to increase showing an increase in the inflation level. The support of the government to the supermarket industry will be an essential aspect of the survival of this industry. The government of the United Kingdom may opt to lower the tariffs or eliminate them completely as a way to protect consumers from the rising prices (Schraer 2019). However, the decision could have significant consequences on the industries that produce similar products to those that have been exempted from the additional tariffs. As a result, the government may face considerable problems in the ability to protect industries while ensuring consumers get affordable goods from the supermarkets. Thus, BREXIT has raised new problems for the supermarkets in the UK, the government and the citizens of the country.

The idea that the price of commodities in the UK will continue to increase is supported by economic evidence. Economists assert that a strong depreciation in the exchange rate of a currency occasioned by the loss of its value increases inflation by raising the expenditure of imports (Breinlich 2017). Statistics support this conclusion because the level of inflation in the UK rose considerably after the BREXIT vote that was followed by a reduction in the value of the British Pound. Clarke, Serwicka and Winters (2017) also support this belief. The researchers indicate that BREXIT induced the devaluation of the sterling by around 14 percent in June 2016 that started to work its way into consumer prices between June of 2016 and July of 2017 when the price of most consumer products rose by about 2.5 percent (Clarke Sewicka and Winters 2017).

However, the rise in the prices of goods did not affect all the goods and services. Breinlich (2016) observes that the goods and services that experienced the most significant rise were transport (rose from 4 percent to 7.5 percent), alcohol (rose from 4 percent to 7 percent), food (rose from 3 percent to 5 percent) and clothing (rose from 2 percent to 4 percent) (Breinlich 2016). On the other hand, the service sector, especially education, hotels and restaurants, were less affected by BREXIT because they do not rely on tradeable inputs (Breinlich 2016). Thus, they retained the same price they had before BREXIT. In this case, the researchers show that BREXIT has affected specific sectors of the economy, and the impact on the goods and services vary. The supermarket sector is one of the industries that have been influenced by these changes. Supermarkets rely on transportation to move their goods across different retail outlets (National Audit Office 2011). Furthermore, they deal in products such as clothing and alcohol. As a result, they have experienced the economic issues arising from the BREXIT vote.

The rise in the price of commodities is expected to affect households (Breinlich 2016). Low-income households are one of the categories that are expected to feel the greatest impact of the rising prices of commodities. Research shows that these households spend about seven percent of their income on transport (Breinlich 2016). In this regard, the rise in the cost of transport will lead to greater pressure on the budgets of these households. Bresciani-Turroni (2013) asserts that the increased pressure that arises from higher levels of inflation lead to individuals reducing their expenses to spend money on the essential commodities. As a result, the supermarkets are likely to experience reduced demand for their products and services from low-income households as they shift their expenditure to the vital goods. Therefore, the rise in the prices of commodities will influence the level of demand for goods and services from the supermarkets.

The increase in prices of consumer goods can be viewed from the perspective of political boundaries. As the UK leaves the EU, it will establish a political difference with the union in terms of its distance, policies and economic direction. Evidence shows that political boundaries have a considerable effect on the relative prices of goods and services across locations (Borraz et al. 2016). Samuel-son’s iceberg cost model implies that the largest difference in the price of goods and services is relevant due to the transport cost estimation (Borraz et al. 2016). Therefore, the prices of commodities will vary in their cost based on the geographic location of a country. In the case of the UK, the prices of the commodities depend on the particular EU member state that is exporting to the UK. Goods from countries that are located near the UK, for example, Germany and France, will be relatively cheaper compared to those coming from far places such as Greece based on Samuel-son’s iceberg cost model. However, tariffs are not factored into the costs of the goods. The membership of the European Union ensures that countries have access to a common market that eliminates tariffs and other barriers of trade that impact the cost of goods (Kouktrakos and Snell 2017). Thus, the movement of goods is not affected by the taxes for imports and exports. However, the cost of transport is a factor that has significant influence on the cost of goods in the United Kingdom.

Koutrakos and Snell (2017) support the idea of the influence of political boundaries on consumer prices from the perspective of policies. Different countries have separate regulations for the production of commodities within their boundaries (Kouktrakos and Snell 2017). For example, they may give subsidies for production or reduce taxes for exportation to certain markets (Achy and Joekes 2016). As a member of the EU, the UK benefitted from some of the policies that encouraged trade between members such as the subsidies for agricultural products (European Commission n.d). However, the BREXIT vote that led to the cessation of its membership of the EU means that it does not receive the subsidies (Kouktrakos and Snell 2017). If the UK government does not provide alternative funding, the prices of agricultural produce will rise. Thus, the political boundaries are a factor to consider as having an impact on the prices of goods in the UK market. The UK can no longer access the loans, grants and subsidies given to various industries that will reduce the output and raise the cost of production that affects consumer prices.

Trade

Most experts hold the opinion that BREXIT will have an adverse effect on trade in the UK (Dhingra et al. 2016; Ebell and Warren 2016). The economy of the UK is deeply integrated with the EU, and the potential of trade barriers such as higher tariffs could have a substantial impact on the UK’s trade. Ebell and Warren (2016) examines the scenario of Norway and Switzerland that are belong to the EU single market but operate outside the customs union, and the researchers assert that the fact that they are not members of the customs union places additional tariff barriers on the nations. Thus, Norway and Switzerland export fewer goods to the EU market compared to other EU countries. Moreover, the goods have a higher costs compared to similar products from EU states that are part of the customs union (Ebell and Warren 2016). BREXIT exposes the UK to a similar scenario as supported by Morris (2019). According to Morris (2019), the tariffs on agricultural products, for example, dairy goods would rise by about 35 percent. Therefore, BREXIT will have a considerable effect on trade in the United Kingdom. Ebell and Warren (2016) show the decline in trade in the UK through an examination of goods in general while Morris (2019) reinforces the notions through an analysis of agricultural products and cars. The authors show that trade volumes in the UK are likely to reduce due to the BREXIT vote.

Evidence from experts in the financial and accounting industry supports the argument that BREXIT will have an adverse impact on trade in the United Kingdom. According to PwC (2016), the UK’s services sector is the industry that would be most affected post-BREXIT. The services sector comprises 80 percent of the UK’s total economy (PwC 2016). Insurance and financial services are exported from the UK to the EU giving the United Kingdom a trade surplus of GBP 19.8 billion. The placement of trade barriers by the EU after BREXIT would have a considerable impact on the UK and its ability to export the services to the UK. The assertions of the PricewaterhouseCoopers are reinforced by scholars at the University of East Anglia. According to Kent (n.d), UK service providers are currently moving their services to the EU under the regulations of the EU common market, and the rules are extremely generous when it comes to accessing the market. The free movement of services is given as a basic freedom under Article 26 (2) of the Treaty regulating the Functioning of the European Union (TFEU) (Kent n.d). BREXIT will mean that the UK will no longer be included in the countries governed by this rule. As a result, the EU would place greater restrictions on the services coming from the UK as part of the rules concerning non-EU members. In this regard, the trade volumes of the UK into the EU are likely to decrease or become more costly. The PricewaterhouseCoopers report sustains the contention that trade between the UK and EU will decline as service exports to the EU market will decline due to the EU implementing new tariffs. On the other hand, Kent (n.d) indicates that the EU will be subject to a different treatment compared to the one given to the EU member states.

BREXIT does not affect trade with the EU alone. According to The Economist (2019), the inability to get a deal after leaving the EU would lead to the UK losing the markets that the EU had signed trade deals with such as Japan, Mexico and Canada. The members of the World Trade Organisation (WTO) have a rule based on the principle of ‘most favoured nation’ where countries are expected to give similar treatment to all countries in a “club” (WTO n.d). The UK has enjoyed this principle in all the countries that have trade agreements with the EU. However, BREXIT poses a risk for the UK since it will lose its membership of the EU and the protections guaranteed under the rule of ‘most favoured nation’ in the WTO. Therefore, the country may have to sign new trade agreements with the countries or lose the relationship built under the EU, and the issue would affect trade with the states.

Further evidence of the potential of trade deterioration in the UK is seen in the car industry. According to Dhingra et al (2016), cars are a major aspect of the UK manufacturing industry, and the UK is the world’s fourth biggest producer of motor vehicles. The EU provides a large market for the cars produced in the UK. The European Union provided 40 percent of the market for the cars manufactured in the UK (Dhingra et al. 2016). The motor vehicle industry in the UK would face additional tariffs and taxes that would affect the costs of the products in the EU market. The assertions of Dhingra et al. (2016) are reinforced by Morris (2019) who postulates that cars from the UK would attract a 10 percent when the cross the border of the UK and EU after BREXIT is completed. Thus, the price of the motor vehicles would increase and a country such as France that manufacture cars would enjoy a lower cost of moving their goods within the EU since it retains its membership of the EU.

UK trade would also be affected by the rate of Foreign Direct Investment (FDI) into the country. The free movement of capital makes it easier for businesses that want to invest in the United Kingdom (Ebell and Warren 2016). BREXIT means that businesses will face new taxes and additional restrictions on the flow of capital, particularly its movement outside of the UK. The issue with FDI is a major concern for investors outside the EU. According to Espinoza (2019), private equity firms are showing considerable concern with the political uncertainty that arises from BREXIT regarding the UK’s relationship with EU. As a result, investors are reluctant to invest in the UK due to the inability to determine their access to the European Union market. The issue affects trade in the EU as it restricts its ability to attract investors who will enable the production of goods and services in the UK.

Employment

According to PwC (n.d), the free movement of people has remained a cornerstone of the Europen Union and continues to play a vital role in enterprises. Although things may not change for the first two years, the negotiations of BREXIT will affect the economy and trade influencing the employment opportunities for people in the UK. Evidence shows that the BREXIT vote will lead to a reduction in the GDP of the UK, and it will affect the number of jobs that are available in the economy (Begg and Mushovel 2016). Demand for the goods and services in the UK comprises about 12 percent of the final products and services from the United Kingdom and translates to around 3.3 million jobs each year (Begg and Mushovel 2016). However, the level of demand for the products and services is likely to fall due to the imposition of restrictions. BREXIT exposes the goods and services from the UK to higher tariffs compared to non-EU members (Dhingra et al. 2016). The higher taxes will affect demand and lower the growth of industries in the UK that offer jobs to the citizens. Thus, BREXIT has a considerable effect on employment in the UK.

Conclusion

The current state of literature shows that BREXIT will have severe consequences for trade, price of products and services and employment. In the case of the cost of goods and services, BREXIT has caused a drop in the value of the Great Britain Pound (GBP), increased restrictions in the EU market, for example, higher tariffs and lack of access to funding opportunities especially the EU subsidies. In the case of trade, BREXIT will influence the trade in the UK. Most experts hold the opinion that BREXIT will have an adverse effect on trade in the UK. The economy of the UK is deeply integrated with the EU, and the potential of trade barriers such as higher tariffs could have a substantial impact on the UK’s trade. One of the ways that BREXIT would affect trade is the increase in the price of goods and services, reduced export of UK products and services into the UK market and lower demand for UK goods and services in the EU due to their higher prices. Internally, the goods and services from the EU market might also become costlier due to the higher tariffs that they may attract unless the UK can negotiate with the EU. Furthermore, the growth of enterprises will slow due to the uncertainty that investors face in the market.

Methodology

Research Design

The research design is the descriptive analysis. According to Matthews and Kostelis (2011), descriptive studies are interested in explaining a situation. In this case, the goal is to describe the issues that the supermarket industry in the UK faces due to the BREXIT vote. The researcher will achieve the aim by examining government and government agency reports to assess the trends in the prices of goods and regulations in the UK.

Research Strategy

Research Philosophy

The research philosophy adopted for this study is the positivism approach. According to Howell (2012), positivism believes that reality is stable and can be examined and described from an objective point of view. As a result, the present analysis is a positivist research that aims to examine the reality of BREXIT and determine its implications for the economy of the UK, specifically the supermarket industry. Therefore, the positivism research philosophy will act as a way to evaluate the impact of BREXIT on the supermarket industry with the aim of understanding its effect on the economy of the UK.

Data

Data Analysis

The process of analysis will follow a thematic approach for the qualitative information. In this case, the researcher will examine the laws that the UK has to follow as a member of the EU and those that it will change when it leaves the EU. The qualitative will be gathered and arranged based on its relevance to the UK, that is, whether it affects the UK as part of the EU or after BREXIT. Conversely, the quantitative data will be examined using an assessment of trend. In this case, the goal is to examine the changes in the prices of commodities in the UK market.

Ethics

The data gathered in the study will be secondary information meaning that the information given must be collected and presented in an appropriate manner. In this regard, the researcher will focus on an appropriate procedure of collecting information and presenting the findings while give proper citations of the source of the information. The goal is to avoid plagiarising information and ensuring the accuracy of the findings. Thus, it is vital to be aware of the ethical issues in the research with the intention of guaranteeing that the data from the research is reliable and verifiable (Woodfield 2017).

Limitations

The data that will be used in the research is secondary, and there are complications that arise from the use of the research. First, the researcher anticipates a difficulty in accessing the relevant information needed. Although official statistics will be used in the entire research project, it has the potential of errors that will be included in the investigation (Bergin 2018). Second, the data collected from the sources has the potential of being generalised and vague that will make it hard to perform a detailed analysis of the way BREXIT will affect the supermarket industry in the UK (Bergin 2018). Therefore, the researcher expects these issues to influence the accuracy and reliability of the study.

Data Presentation and Analysis

EU Regulations that the UK follows as a Member

As a member of the EU, the UK has to follow several regulations. One of the most important regulations is the single market. According to Europa (n.da), the EU established the single market creating a market without borders. In this case, the union ensures that there is free movement of commodities, services, capital and individuals in a single EU internal market. Therefore, the UK has to allow the goods from other EU countries to enter its borders without any restrictions. Another regulation that the EU has to follow as a member of the EU is the Customs Union. The requirements of the Customs Union are that it has to follow the same uniform of system of taxes and no extra duties are charged at the borders of EU states (Europa n.db). Therefore, the UK has to follow is that it has to follow specific regulations that make it subject to laws concerning trade and the movement of goods and services. The above information achieves a certain part of the research objective by identifying the laws that the UK will no longer be required to follow after withdrawing from the EU. It shows that the UK will no longer be mandated to implement the regulations concerning the customs unions and single market.

Laws that Require Modification after UK Exits the EU

The Trade Remedies Regulations 2019. The UK has proposed a law to change the trade relations known as The Trade Remedies (Reconsideration and Appeals) (EU Exit Regulations 2019. According to Legislation.gov (n.d), the UK has proposed the law as a way to establish a framework for the UK’s trade remedies system to operate its trade policy after it withdraws from the EU. Parties interested in trading with the UK will have to request that they be reconsidered and/or appeal against a trade remedy decision by the Trade Remedies Authority (TRA) and Secretary of State. Therefore, the law will move the power to make trade decisions from Brussels to London. The EU Commission will no longer have the responsibility of making trade choices shifting it to the Trade Remedies Authority and the Secretary of State. The regulation has minimal impact on the supermarket industry. Companies in the sector will only have to appeal various decisions with the TRA or Secretary of state rather than the EU. However, it does not affect the cost of goods and services in the supermarkets or issues related to labour. The second aspect of The Trade Remedies Regulations of 2019 concerns the dumping and subsidisation of goods. In this case, the TRA will have powers to use the comparable prices of products to determine their normal value as long as it appropriate to use that price (Legislation.gov n.d). The literature review shows that the EU is the UK’s largest trading partner (Partington 2019). The lower trading with the country would lead to the country experiencing significant challenges in its import-export deficit (Koutrakos and Snell 2017). As a result, it may lead to growing importation with a reduction in the export. The situation would likely affect the value of the currency as the British Pound begins to weaken (Dhingra et al. 2016). In this regard, the pricing of goods by the TRA would be based on a devalued currency making them more costly. Therefore, the supermarket industry would have to raise the prices of goods that would lead to costly products. Evidence shows that increasing prices affects consumer spending as people begin to spend their money on the essential commodities (Bresciani-Turroni 2013). Consequently, the supermarket sector will experience a decline in the demand for goods and services due to the higher prices of these items. The last law that affects the supermarket under the Trade Remedies Regulations 2019 is The Trade Remedies (Increase in Imports Causing Injury to UK Producers) (EU Exit) Regulations 2019. The regulation states that the TA will assess concerned goods and make decisions concerning the importation of products (Legislation.gov n.d). The TRA will make decisions on the importation of goods based on the production in the United Kingdom of similar goods as well as their competitiveness. In this case, the supermarkets will have to deal with higher costs of products based on the inflation level as well as the devaluation of the GBP. According to the ONS (2017), the level of inflation in the UK has continued to increase since the BREXIT vote. Thus, a decision by the TRA to limit imports due to their availability within the United Kingdom would mean supermarkets have to incur additional costs for the products, and the price of goods in the country will continue to rise. The qualitative information realises the second part of the research objective by indicating the laws that have been changed as the UK continues with the BREXIT process. The Trade Remedies Regulations 2019 have been created to govern the issues related to trade in the UK.

Price of Goods in Market. The price of commodities in the market has been changing over the years. Graph 1 below show the shift in the price of milk since the BREXIT vote in June 2016. The graph shows that milk prices have been rising, but the increase has been minimal. Nevertheless, the higher price of milk shows that consumers have to pay more for the goods at supermarkets that has the potential to affect demand. As mentioned, the increasing prices affects consumer spending as people begin to spend their money on the essential commodities (Bresciani-Turroni 2013). As a result, the supermarket industry will experience higher prices of goods and reducing demand for their products.

Graph 1: Price of Milk in the UK since 2016 (Source: ONS 2017a)

Graph 2 shows the movement of food prices in the UK for the same period (June 2016 to April 2019). The graph shows that the cost of the items was on a steady rise after the BREXIT vote, but it has started to decline. According to the literature review, the Consumer Price Index in the UK jumped from 2.6% to 2.9% in just a month after the BREXIT vote. The problem was blamed mainly on the reduced value of the British Pound (ONS 2017). As a result, the issue shows that supermarkets are facing higher prices for their commodities that affect the demand for the commodities. The UK will also suffer from reduced trade that will affect the performance of its economy, especially the supermarket industry. The UK Trade Policy Observatory at the University of Sussex observed that the calculated increase in tariffs by 44.6 percent would lead to an 8.1 percent rise in the price of dairy products (Schraer 2019). In addition, the products are subject to higher production costs due to the increase in the level of inflation and the loss of value of the GBP. Thus, the goods are likely to become more expensive in the EU market making them less attractive to the consumers which affects trade. In this case, the supermarkets with operations outside the UK will have to purchase the goods on their shelves in the EU states rather than the UK affecting the UK’s trade. In addition, the demand for the goods and services in the UK encompasses about 12 percent of the final products and services from the United Kingdom and translates to around 3.3 million jobs each year (Begg and Mushovel 2016). However, the level of demand for the products and services is likely to fall due to the imposition of restrictions. BREXIT exposes the goods and services from the UK to higher tariffs compared to non-EU members (Dhingra et al. 2016). The higher taxes will affect demand and lower the growth of industries in the UK that offer jobs to the citizens. Therefore, the increased prices of commodities affect employment and trade in the UK. The sections above achieve the second objective of measuring the cost of goods and services before and after BREXIT by assessing the cost of commodities and services since 2016 until 2019 as the BREXIT process continues.

Graph 2: Movement of Food Items (Source: ONS 2017b)

Conclusion

The supermarket industry will experience a considerable impact from the UK’s decision to leave the EU. One of main issues that has affected the supermarket, and will continue to impact the sector, is the rising prices of products. The loss of value of the GBP and the rising inflation will continue to impact the businesses. These challenges will affect the economy of the UK in a number of ways. First, customers will experience a higher cost of living, and the rate of employment will continue to decline. Although the CIPD asserts that employment rates are increasing, the rate is slower than the previous years before BREXIT. Second, the supermarket industry is likely to experience a decline in the rate of growth for several reasons. The higher prices will motivate consumers to purchase the essential commodities that will lead in the revenues of the supermarkets. In this regard, the industry will have problems generating the income required to finance investments. Third, the supermarket industry is likely to experience an increment in the costs of operations, particularly the remuneration of employees. The rising cost of living will motivate workers in the sector to demand higher pay to enable them cope with the high prices of goods and services. Thus, they will continue to experience high costs of operations that may be passed to consumers driving the costs of goods and services higher. The information gathered in this research also shows that BREXIT will have a significant impact on the economy of the UK. One of the major effects on the economy will be on trade. The loss of value of the GBP and rising inflation will make it more costly to produce goods and services in the UK. The problem will make it more difficult for EU goods and services to compete in the international market and the EU. Therefore, the country will continue to face problems with trade. The present research aimed to identify the laws that will change once the UK is no longer officially obligated to follow the rules of the EU. In this regard, the research finds that the regulations concerning the single market and customs union will have to change. The UK has started the process with the creation of several laws under The Trade Remedies Regulations of 2019 that give the TRA and Secretary of State powers to make trade decisions. The second aspect of the study sought to examine the rise of the prices of goods in the economy. The information collected has showed that the prices of goods such as milk have been on a rise, and the increase in cost affects the supermarket industry in a variety of ways. Therefore, the study shows that BREXIT will influence the UK economy as well as the supermarket sector in a negative way, but the situation cannot be determined to be a long-term issue since the BREXIT process is still continuing. The UK has the possibility of getting a deal that will enable it to reverse the current problems in its economy.

Recommendations and Future Research

The UK must undertake the BREXIT process with considerable care. The government should pay attention to the negotiation process to enable it leave the union without significant effect on the economy. One of the ways to achieve the goal is to focus on areas such as the free movement of labour that will allow supermarkets to continue having inexpensive human resources to address the problem brought by the increase in the price of goods and services. In addition, the government should focus on trying to reverse the trend of inflation and the value of the Great Britain Pound (GBP). In this case, the government should employ both monetary and fiscal policy measures to address these issues to stabilize the cost of production and enable supermarkets to access affordable goods that it will sell to customers. The approach will also safeguard the cost of living for the citizens of the UK by preventing a considerable rise in the price of goods and services.

Future Research

The current analysis aimed to examine the impact of BREXIT on the economy of the UK by focusing on the supermarket sector. Further investigation is possible by examining other industries in the economy of the UK. For example, researchers can analyse the motor vehicle industry with the intention of discovering whether the effect of BREXIT is similar to the supermarket sector. Thus, it will be possible to determine whether BREXIT is an issue that will affect the UK for a long period and determine the steps that the government can take to reverse the problem.

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