During and after the vote on the United Kingdom’s membership in the European Union, the potential economic consequences of Brexit were a hot topic. There is widespread agreement among economists that Brexit would hurt the UK economy and lead to lower real per capita income over the long run.
It presents difficulties for British higher education and academic research and is expected to lead to a significant decrease in immigration from nations in the European Economic Area (EEA). Employment rates, commerce, investments, imports, exports, and even the vehicles sector were all already showing signs of Brexit’s influence on the UK economy.
What Exactly Is Brexit?
Brexit is an acronym formed from the English words “Britain” and “exit,” and it describes the United Kingdom’s exit from the European Union (EU). Withdrawal from the EU by any Member State is governed by Article 50 of the Treaty on European Union. Any EU member state is free to leave the union if doing so would violate its constitution.
Following notification of this decision, negotiations will begin between the EU and this State to determine the terms of the withdrawal and the nature of their future relationship. After the vote on June 23, 2016, and the notice to the European Council on March 29, 2017, the United Kingdom has begun the exit process.
Although the United Kingdom officially left the European Union on February 1, 2020, the Withdrawal Agreement did not take effect until March 29, 2019, and it ensures that the EU and the United Kingdom will continue to apply the acquis communautaire to their relationship until December 31st, 2020.
What Factors Led To Brexit?
The UK Conservative Party demanded a vote on Brexit in 2015. Supporters of Brexit said EU membership was not delivering the benefits in terms of a thriving economy, security against crime and terrorism, management of immigration, and effective public services. The final tally showed that 51.8% of voters supported Brexit.
There are ways in which the economy and society influenced this choice.
The nation, however, did not suddenly develop into this advanced phase. The number of foreign nationals entering the United Kingdom increased by 25 % in 2014 compared to 2013. The immigration problem in the country has been going on even before the United Kingdom joined the European Union.
The regions that had experienced a significant inflow of immigrants were more likely to support Brexit in the referendum.
Voters who identified as middle- to lower-class, older, white, socially conservative, and/or financially disadvantaged thought they were being abandoned by the more economically liberal elite. These individuals supported the Conservative Party and ultimately Brexit.
Also, consider that some Brexit supporters were motivated by the promise of financial gain. If Greece weren’t a member of the European Union, it could negotiate its own trade agreements with other nations. There was a widespread belief in the UK that EU regulations stifled free-market thinking. Others sought to shield the British economy from potential shocks like the 2008 Financial Crisis and the Eurozone crisis of 2009.
The Consequences of Brexit on Britain
The day the referendum result was announced, the value of the pound hit a 31-year low. This highlighted the apprehension that investors had about the future of the United Kingdom in the wake of Brexit. Over the course of the next year, the pound rose in value as traders adjusted to the news. The pound fell when the Brexit transition ideas were made public and repeatedly rejected. There is a lack of faith among investors, which is reflected in the pound’s volatility despite the fact that a weaker currency boosts exports.
Effects of Brexit on the UK Economy
Brexit had both a negative and a positive impact on the Economy as it had an effect on other various areas and sectors.
Brexit’s Positive Effects on the UK Economy
That the United Kingdom may now engage in more commerce with nations outside the European Union is seen by some as a beneficial influence of Brexit. Since the value of the pound has gone down, it is now more affordable to purchase products and services from global markets, which might make such markets more profitable.
Due to the decline in the value of the pound, there has been an improvement not only in the current account balance but also in the position of the net foreign debt. Trade with nations such as China, Canada, and India has strengthened as a result of Brexit, contributing to higher economic growth.
The Brexit’s Adverse Effects on the UK Economy
Prior to the definitive withdrawal of the UK from the EU, the country encountered a drop of around 1.5% of the economy. Because of the anticipated greater trade barriers, company investment and relocations to the EU have decreased.
Britain’s economy struggled in recent years (2018-20) as a result of the dual impacts of Brexit and the sad events of late 2019. The Boris Johnson government has signed a Trade and Corporation Agreement (TCA) with the European Union and completed the necessary Brexit paperwork after taking office. Since the EU is geographically close to the UK, it will continue to be an important commercial partner for the foreseeable future.
As a result of the United Kingdom’s decision to leave the European Union (EU), a significant percentage of the country’s workforce originally hailing from EU member states left the country either because they were unable to or because they chose not to remain.
Since certain formerly freely traded items now require stringent inspections and permissions, Brexit also had a negative impact on the UK’s service trade deficit and its merchandise trade balance. Additionally, FDI from abroad suffered. Since the UK is no more a gateway to the EU single market, investors have been forced to find alternative entry points.
The United Kingdom gains economic advantages from EU trade agreements with other countries since it is a member of the EU. The European Union (EU) has greater negotiating strength than any individual member state since it represents the world’s largest economy. As a result, leaving the EU would reduce the UK’s influence in trade negotiations and threaten its ability to maintain tariff-free trade with the rest of Europe.
There is a risk that the United Kingdom may have less success negotiating new trade agreements with other nations. Financial markets in the UK have been volatile as a result of the confusion surrounding Brexit. If there is a hard Brexit, tariffs will be imposed on all incoming and outgoing goods and services, driving up prices for both.