Regions of the UK outside London are expected to experience greater impacts from price rises caused by Brexit, according to new research from the progressive policy think tank, IPPR.
Likely rises in transport costs will contribute to a disproportionate impact on household spending in areas outside the capital, the new analysis shows.
Researchers modelled the likely effect of two Brexit scenarios on prices and household spending and found the same pattern of effects under each.
They estimated how price rises due to likely new trade barriers with the EU after Brexit will affect areas of the UK in different ways, based on varying household spending patterns. The researchers found larger impacts outside London, in part because housing costs – expected to be less affected by Brexit – make up a smaller part of their spending. Meanwhile, transport costs, likely to rise more through increased prices of vehicles, make up a larger part of household spending outside the capital.
Impacts on prices are estimated to be largest under a ‘hard’ Brexit, where the UK leaves the EU on WTO terms. Under this scenario, an average ‘basket’ of goods and services bought by a household would rise in price by 2.7 per cent in London, compared with rises of between 3 and 3.2 per cent for households elsewhere in the UK.
The IPPR report, which explores the potential effects of Brexit on different income groups, nations and regions, genders and ethnicities, also found that:
- More highly paying industries, such as finance and chemicals, are expected to suffer more negative economic impacts (negative GVA) from Brexit. But a number of lower-paid sectors are also expected to be negatively hit.
- Prices are expected to rise for all household income groups, and reductions in tariffs for imports from non-EU countries would be unlikely to fully compensate for these price rises. But price rises will have a broadly neutral effect on income inequality.
- Wales and the North East are the regions with the highest EU goods exports relative to the size of their economies, putting them at greater risk of an adverse economic impact from trade barriers in goods. Localities with the highest EU goods exports relative to the size of their economies are Flintshire and Wrexham, Sunderland, Telford and Wrekin, South and West Derbyshire, and Luton.
The report recommends that the best way of minimising the predicted negative impacts of Brexit on poorer groups and regions is for the UK to pursue the option of a ‘shared market’ in its negotiations with the EU. This would include a comprehensive customs union and an agreement on regulatory alignment with the single market, together with a mechanism to allow for the possibility of divergence over time.