The UK’s historic decision to leave the European Union, commonly referred to as Brexit, has had a significant impact on the UK job market, although the real impact has been difficult to determine due to added complexities introduced by the COVID-19 pandemic. Overall, however, the UK job market has been faced with a reduction in business investment and a slowdown in economic growth, which led to periods of historically high levels of vacancies and low unemployment, creating very tight conditions.

Following an encouraging 2022, the UK job market slowed in 2023 and with an extremely challenging outlook for the economy in 2024, the balancing of supply and demand will continue amidst testing conditions across the board and persistent staff shortages for some sectors.

The role of immigration.

Immigration was arguably the key battleground in the build-up to the referendum vote. As one of only three countries, the UK extended the principles of unrestricted movement to citizens of the eight new member states that joined the EU in 2004, which subsequently led to a surge of EU workers in the UK.

Since the referendum in 2016 and the introduction of the new Brexit legislation in 2021, businesses and job seekers have been navigating through a period of uncertainty and change, with EU citizens no longer having the right to work in the UK without a visa. Overall, balancing the reduction in EU workers and the influx of non-EU citizens estimates place the resulting net shortfall in labour as high as 330,000 workers, or 1% of the total UK labour pool.

Data from the Office of National Statistics points toward a negative net migration of EU citizens to the end of June 2023. The same data, however, shows there was an increase in total net migration driven, in part, by broader macroeconomic and geopolitical factors which has prompted the government to introduce new measures to control immigration levels, as interest in UK jobs from overseas candidates grows.

Negative impact on the job market.

One of the most immediate effects of Brexit on the job market has been the decrease in job vacancies in certain industries. Many businesses, particularly those with strong ties to EU markets, have been cautious about hiring new staff amidst the uncertainty surrounding future trade agreements and regulations. This has led to a slowdown in recruitment, especially in sectors such as finance, manufacturing, and hospitality.

The end of free movement has also meant businesses have faced difficulties recruiting skilled workers from EU countries, as visa requirements restrict numbers and economic conditions diminish the appeal of the UK. This has led to shortages in certain sectors, particularly in healthcare, construction, and agriculture, where EU workers have traditionally played a significant role.

Sectors traditionally heavily reliant on EU staff to perform low-paid roles, such as hospitality, have seen significant staff shortages affecting operations and service quality. The immigration system means these deficits cannot easily be met by non-EU workers, leaving employers with the option of increasing wages to attract workers or reducing their reliance on staff by introducing automation.

Moreover, the financial services sector, which accounts for a significant portion of the UK’s economy, has experienced a shift as some firms relocated some of their operations to EU countries to ensure continued access to the single market. This has led to fewer job losses in the sector than initially predicted, but it is the full effects on the job market have yet to play out.

Positive Impact on the Job Market.

Some argue that Brexit has provided opportunities for the UK to revitalise some domestic industries and create more jobs for workers. With the free movement of EU workers restricted and non-EU people subject to entry requirements, there is an increased focus on upskilling and training the domestic workforce to fill the gaps left by the decline in EU labour. This has led to initiatives to invest in education and vocational training, potentially improving the skill levels and employability of the UK workforce in the long term.

Additionally, the UK government has sought to negotiate trade deals with countries beyond the EU, which is expected to open and grow new markets, creating employment opportunities both at home and abroad across the skills spectrum in sectors such as technology, manufacturing, and renewable energy.

Brexit has not affected all sectors evenly and while some industries, such as automotive, have been hit hard with job losses, automation has been a key contributor as much as Brexit. Conversely, industries such as fishing have seen initial positive impacts due to regained control of fishing rights and the protection of jobs.

The impact has also not been distributed equally across regions; the North East is expected to be hit hardest by Brexit, as its firms are particularly reliant on exports to the EU, while the East of England, which has a high share of food manufacturing, and Scotland are expected to outperform the rest of the country. Moving forward, regions with a high concentration of manufacturing businesses that rely on frictionless trade with the EU will continue to face challenges.

Brexit has also had a more pronounced effect on the job market in regions with a higher proportion of EU nationals in the workforce, such as London and the Southeast, compared to regions with lower EU workforce representation.

Looking ahead.

Brexit has undeniably left its mark on the UK job market, causing disruptions and changes across various sectors and throughout the UK. While some industries have faced challenges due to dramatic labour shortages and changes in trade relationships, others have identified new growth opportunities and are adapting to the post-Brexit landscape. The long-term impact of Brexit will depend on how effectively the government and businesses can coordinate to address the challenges and capitalise on the opportunities presented by this unprecedented economic shift.

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