Brexit: the Economy of the United Kingdom - Report Example

Brexit Name: Institution: Brexit is a shorthand way that has been adopted to refer to the UK intending to leave the European Union (EU). This was as a result of the win of a referendum that won by 52% stating that the UK should leave the EU (Barrett et al., 2015). The referendum had a total turnout of 71.8% where more than 30 million people participated in the voting process. England and Wales voted strongly for Brexit with 53.4% and 46.6% respectively (Weiler, 2015). Scotland and Northern Ireland were in strong support of UK remaining in the EU and therefore voted against Brexit with 62% and 55.8% respectively (Tielmann & Schiereck, 2016). The Brexit will mean the separation of the UK from the EU and this will come with a lot of changes both politically and economically for both the UK as well as other countries. Considering that the UK has opted out of the EU through the referendum vote, the crucial bone of contention that exists now is how the Brexit is likely to affect the economy of the UK (Tielmann & Schiereck, 2016). The short term impacts are likely to be serious including the fall of the sterling, the freeze of investments and the slide in stock markets (Springford & Whyte, 2014). The economy of the UK suffered shock based on the Brexit vote but it appears to have survived it. However, it is likely that the economic effects of Brexit are likely to be felt in the long term. The slump of the sterling has also been pointed out by major firms including John Lewis and Easyjet as having increased their costs of operations (Springford & Whyte, 2014). Important to note also is that Britain lost its credit rating of AAA which was its highest (Barrett et al., 2015). This is an indication that going further, government borrowing is likely to shoot up. However, the scenario appears brighter on share prices since that dramatic slump which prevailed before the referendum has changed and looks brighter as they are now trading higher (Springford & Whyte, 2014). Banks are also cutting down interest rates, something that has not happened in the recent past, with the hope that this will stimulate investment while staving off recession. It is essential to realize that the UK has benefited in numerous ways from being a member of the EU. This can be seen through the improvement of the annual growth of its economy. This therefore allows for those against Brexit a voice stating that the EU membership of the UK did not actually burr UK from experiencing national renewal (Arnold, 2014). Many economists who are supporting the Brexit however reiterate by saying that Britain’s improvements in terms of performance have not come about as a result of being a member of the EU but because of the reforms that have been put across by Margaret Thatcher (Weiler, 2015). Arguments by those supporting Brexit claim that it is not essential that the UK be in trade agreements in order for it to do business (Springford & Whyte, 2014). This is true but it is also important to realize that these agreements come in handy while setting rules of commerce. Moreover, these agreements act to protect those getting into trade against arbitrary actions and disputes. Leaving the EU would render the Britain vulnerable especially to legal action of the World Trade Organization (WTO) dispute settlement rules (Arnold, 2014). This is because the WTO rules allow for EU member countries to trade securely. Since the Britain does not have its own schedule tariffs, agricultural subsidiaries as well as commitments of service, this might make trade outside of the EU tricky for Britain. Britain’s net migration rate is the second highest and David Cameron had made a pledge to bring the figure down. There was a rapid rise in the net immigration levels from EU countries especially after their accession to the EU (Springford & Whyte, 2014). It is essential to note that majority of the EU migrants are young and therefore productive and employable. This way, they make huge contributions to the economy of the UK, much more than the citizens of UK (Oliver, 2016). Therefore, it is safe to say that their contributions are of far much value than what they take out and hence acting as a great resource for the country. Withdrawing from the EU will affect the workforce of Britain greatly. Also, Britain is more likely to experience more migrants from non-EU countries (Arnold, 2014). It is therefore important to face the fact that for as long as Britain’s economy continues to doing well, it is likely to attract immigrants. Studies have found out that there is no direct correlation between high levels of immigration and reduced wage growth. However, a study conducted by a bank in England found out that there is a small effect on the workforce that is paid lower (Möller & Oliver, 2014). There is a 10% rise in the low-skilled migrant’s share that reduces the wages of the lower paid workforce by 2%. This small margin has been exaggerated by those supporting Brexit who claim that the effect of migration is minimal on the low skill wages (Dhingra et al., 2016). Looking at the evidence present, EU migration does not appear to cut the pay of the low paid people. However, there is a possibility of employers increasing employment in areas where there is high demand without necessarily having to raise the pay. The migrants act as a buffer for high demand areas. According to official trade statistics, the EU is the leading destination for more than half of all the British goods export. Trading links are made even wider because the countries that the UK trades with are governed by free trade agreement (Lea, 2016). This said, it is clear that a large percentage of British goods exports are linked to its membership to the EU. Favorable trade agreements are likely to arise after Brexit especially because of the advantages both sides are enjoy if they continue working closely in a commercial agreement (Boulanger & Philippidis, 2015). Additional charges are likely to be implemented for exporters outside the single market including having to comply with the EU rules of origin. Such factors would be an inconvenience to those intending to get into trade with the UK and not necessarily a hindrance to trade (Springford & Whyte, 2014). Britain attracts a lot of foreign investors and the Brexit could to a great extent affect foreign investment. There are concerns about the possibility of drying up direct foreign investment in Britain if the referendum passes (Dagnis & Snaith, 2016). However, being a member of the EU is not the only reason as to why foreign investors choose to remain in Britain. Other than them having access to the single market, foreign firms also enjoy advantages that would still be attractive enough for them to want to remain or invest for the new investors (Arnold, 2014). It is realistic to expect a period of weak inflows of foreign direct investment during the period of renegotiations of the new relationship of the UK (Dhingra et al., 2016). It is up to Britain to strive to maintain a favorable environment which will appeal to foreign direct investment and this would probably help recoup lost grounds. Exiting the EU would mean that the British Government makes savings of approximately ten billion Euros yearly based on the contributions they make to the EU’s budget (Weiler, 2015). This figure is actually likely to rise if the rebate of the British is to be put to threat in the years to come or if Brexit results to a fastened economic growth (Boulanger & Philippidis, 2015). Also, lower migration levels and reduced economic disruption following Brexit could to a great extent offset the savings. If the British government would like to maintain access to the single market, it will be required to make some contributions to the EU (Weiler, 2015). Therefore, despite the small margin, Brexit is expected to benefit public finances. In conclusion, the withdrawal of the British from the EU has both positive and negative repercussions. For the economy particularly the product sector is likely to face many uncertainties than the service sector (Springford & Whyte, 2014). This is because the variables in the product sector are more reliant on the UK and whether it agrees to the trading agreements of the EU. The negative would be the possibility that tariffs may be introduced on goods for export to the EU as this would greatly affect trade. On the other side, the positive would be that British will open up its trade activities with non-EU countries as well as the liberty to use cheaper inputs to maximize profitability (Springford & Whyte, 2014). Many commentators and authors predict a downfall for Britain following the Brexit but it is also important to realize that it actually would leave Britain better off in the long run (Dhingra et al., 2015). This is particularly in the event that Britain uses its new found freedom to effectively negotiate its trading arrangements for its own advancement. References Arnold, M., 2014. Possibility of ‘Brexit’threatens London’s prospects. Financial Times. Accessed August, 23, p.2015. Barrett, A., Bergin, A., FitzGerald, J., Lambert, D., McCoy, D., Morgenroth, E., Siedschlag, I. and Studnicka, Z., 2015. Scoping the possible economic implications of Brexit on Ireland. ESRI Research Series, 48. Boulanger, P. and Philippidis, G., 2015. The End of a Romance? A Note on the Quantitative Impacts of a ‘Brexit’from the EU. Journal of Agricultural Economics, 66(3), pp.832-842. Dagnis Jensen, M. and Snaith, H., 2016. When politics prevails: the political economy of a Brexit. Journal of European Public Policy, pp.1-9. Dhingra, S., Ottaviano, G. and Sampson, T., 2015. Should we stay or should we go? The economic consequences of leaving the EU. CEP Election Analysis Paper, (22). Dhingra, S., Ottaviano, G.I., Sampson, T. and Reenen, J.V., 2016. The consequences of Brexit for UK trade and living standards. Lea, R., 2016. The Authorities begin to get to grips with Brexit: post-referendum update. Arbuthnot Banking Group, 18. Möller, A. and Oliver, T., 2014. The United Kingdom and the European Union: what would a “Brexit” mean for the EU and other States around the World? European and global perspectives. DGAPanalyse. Oliver, T., 2016. European and international views of Brexit. Journal of European Public Policy, pp.1-8. Springford, J. and Whyte, P., 2014. The consequences of Brexit for the City of London. Centre for European Reform. Tielmann, A. and Schiereck, D., 2016. Arising borders and the value of logistic companies: Evidence from the Brexit referendum in Great Britain. Finance Research Letters. Weiler, J.H., 2015. Brexit: No Happy Endings; The EJIL Annual Foreword; EJIL on your iPad!!!; Vital Statistics; ICON. S Conference. European journal of international law= Journal europeen de droit international, 26(1), pp.1-7. Read More