5.0 References 8

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Table of Contents

Particulars Page No

1.0 Introduction 1

2.0 Economic Implications of “Brexit” 2

3.0 Is Brexit Good for United Kingdom 5

4.0 Conclusion 6

5.0 References 8

  1. Introduction

This essay has been drafted in a systematic and synchronised manner to discuss on the economic implications of “Brexit” and to further discuss on if “Brexit” is a good thing for United Kingdom or not. The report not just looks to discuss on the topic but ensure a practical understanding of the entire topic under study.

Brexit is actually a shorthand way of saying United Kingdom leaving the European Union which actually happened on 23rd June, 2016 whereby the British citizens opted to vote out of European Union (EU). The immediate affects where surprising as the global market collapsed and the British Pound fell to the lowest level in decades. Furthermore, The British Prime Minister who opposed such an exit resigned from his post and UK saw a new Prime Minister in the hands of Theresa May. However, it is to be noted that this report is a more subjective nature and highlights upon the economic implications of Brexit along with discussion of whether such a move shall be good for UK or not.

  1. Economic Implications of “Brexit”

United Kingdom on basis of a referendum on 23rd June, 2013 opted to exit from the European Union. The economic implications of the same are largely to be significant. The major economic implications of “Brexit” has been discussed and explained as under.

Immigration

Free movement of labour has been one of the most significant fundamental Freedom of European Union (EU), which allowed EU citizens to move freely between the member states. Annual inflow of EU Nationals into the UK has almost doubled since 2012 which currently accounted for more than 6% of the people in employment in UK. UK exit from the EU might put restrictions of such immigration to UK from EU and vice-versa which shall have a major impact on the availability of lower skilled labour (Wadsworth, 2015). The cost of production shall rise as a result of the same and inflation shall reach its zenith. The economic prosperity of United Kingdom shall suffer a major setback as a consequence of the same.

Trade and Investments

Statistics currently shows that owing to the free-trade agreement between the member states of European Union. UK currently exports over 60% of its goods and services to various states of the European Union which are tariff-free. The European Union is currently the largest export market for UK goods and services. With Britain exit from the European Union, the large export market is at a higher risk of removal of free trade or imposition of high tariffs in future exports, thereby making a clear indication of trade suffering and economic slowdown for UK (Handley & Limão,2015). Furthermore an increase in trade barriers would have a serious knock-out impact on the overall investment structure in particular the Foreign Direct Investments (FDI’s) with lower return on investments in the United Kingdom.

Regulation, Innovation and Productivity

United Kingdom as a result of Brexit is certainly bound to get benefitted in terms of removal of very stringent regulations which has been imposed on all the member states of European Union (Minford, 2015). This shall result in deregulation and potential reduction in the regulatory costs. Removal of regulation shall further help to boost productivity but this shall in no sense be a game-changer. The impact of brexit on Innovation and Productivity is likely to little impact however with exports suffering finding a new market for absorbing such high curtailed exports shall be a challenging task for United Kingdom (Booth, Howarth,et al.,, 2015).

Fiscal Contributions

As an agreement between all member states of European Union are required to make financial contributions to the EU budget. Statistic shows that United Kingdom from 2010 to 2015 makes annual average contribution of around £ 16.8 billion. However, United Kingdom enjoys a rebate and central funding from European Union in the form of faming subsidies and funding from rural and regional development programmes and other such programs. On deeper understanding of the statistic it can be concluded that UK contributes on an average around 0.5% of its GDP (Europe Economics, 2015). As a result of Brexit, UK shall certainly save on such funds deployment but however the subsidy in context to common agricultural policies and R&D shall also be curtailed. Hence, the benefit of such shall not be such immense to the public sector growth of United Kingdom.

Consumption and Property Market

Britain exit from the European Union is most likely to adversely affect the property markets of United Kingdom as the role of financial services sector is likely to be overstated ensuring a minimal effect at the macroeconomic level (Deutsche Bank, 2016). However the aftermath is more terrible as the aggregate consumption level and pricing of property shall decline. Uncertainty shall rise to a considerable extent and is more likely to have a negative impact on the country’s GDP rate.

  1. Is Brexit Good for United Kingdom

It is to be noted that although it is quite early to come to any conclusive statement of the real impact of Brexit on United Kingdom as the level of uncertainty is on the higher side. However, on personal beliefs the impact of Brexit on United Kingdom shall be more adverse than favourable owing to the following reasons discussed as under.

  • With United Kingdom making an exit from the European Union, the exports are largely to suffer to a greater depth as currently over 60% of the United Kingdom goods and services and exported to member states of European Union on a free tariff or at a very low tariff. This in turn helped the businessmen of United Kingdom to make goods and services cheaper and contribute highly to the nation’s GDP. However, with Brexit the tariffs shall rise significantly and it will be a challenging task for UK to find new locations to export its goods (Crafts, 2016).

  • The United Kingdom is more likely to benefit less from future market integration within the European Union. The main economic benefit on not contributing to the EU budget shall be much lower to loss of free trade as a a result of Brexit.

  • Although the exit of United Kingdom from European Union shall relax upon the binding stringent regulations of European Union, and UK now need not compromise so much with other EU states, United Kingdom unfortunately shall also lose the bargaining power as its economy only makes up to 18% of The European Union’s Single Market (Ottaviano, Pessoa,et al., 2014).

  • In the Longer run, the exit of United Kingdom from the European Union shall certainly reduce the trade productivity. Factoring on the same, the effect could substantially increase cost of Brexit to generate a loss of 6.3% to 9.5% of the United Kingdom’s GDP (Which is about £4200 to £ 6400 per household) (Pain & Young, 2004).

  • As already have been discussed the adverse effect of Brexit particularly on the UK exports, in the longer run if United Kingdom decides to remove all tariffs from rest of the world after their exit from European Union, United Kingdom income is more certain to fall by 1% in the optimistic case and over 2.3% in the pessimistic case, making its GDP suffer in the longer run (Feyrer,2009).

  • With Brexit, short term losses in terms of slag in the consumption and property market is more likely to increase the inflation rates and lower productivity for United Kingdom.

  1. Conclusion

The essay provides a clear theoretical and practical understanding of the economic implications of Brexit. Although it is still very early to make any conclusive fact of the negative or positive impact of Brexit, the report clearly identifies many practical findings of how Brexit could be more of an adverse impact than contributing positively to the United Kingdom’s growth and prosperity.

  1. References

Booth, S., C. Howarth, M. Persson, R. Ruparel and P. Swidlicki, 2015. ‘What If..? The Consequences, Challenges and Opportunities facing Britain outside the EU’, London: Open Europe.

Crafts, N., 2016. ‘The Growth Effects of EU Membership for the UK: A Review of the Evidence’, University of Warwick mimeo.

Europe Economics, 2015. “ How EU Wholesale Financial Regulation Differs from what the UK would Choose for Itself.

Deutsche Bank, 2016. “ The UK and EU: Exit Emergency”.

Feyrer, J., 2009. ‘Trade and Income – Exploiting Time Series in Geography’, NBER

Working Paper No. 14910.

Handley, K. and N. Limão,2015. ‘Trade and Investment under Policy Uncertainty: Theory and Firm Evidence’, American Economic Journal: Economic Policy 7(4): 189-222.

Minford, P ,2015. ‘Evaluating European Trading Arrangements’, Cardiff Economics

Working Paper No. E2015/17.

Ottaviano, G., J. Pessoa, T. Sampson and J. Van Reenen, 2014. ‘The Costs and Benefits of Leaving the EU’, Centre for Economic Performance Policy Analysis

Pain, N. and G. Young, 2004. ‘The Macroeconomic Effect of UK Withdrawal from the EU’, Economic Modelling 21: 387-408.

Wadsworth, J., 2015. ‘Immigration and the UK Labour Market’, Centre for Economic

Performance Election Analysis No. 1