Essay: How Brexit impacted the UK’s economy

In this thesis we will be arguing about how the Brexit impacted the UK’s economy. The vote which decided whether we leave the EU or not took place on the 23rd June. This referendum came out with shocking results to a lot of people within the UK and EU which caused the value of the pound to fall the lowest in decades. It was a very close vote as just over a half of the voters decided to leave; the result stood with majority vote of 52% for out and 48% in (Hunt and Wheeler, 2016). We will be discussing various topics as to how the Brexit affected the economy in ways such as the pound falling, trading, employment, farming and immigration.

As the U.K decided to leave the EU on 23rd June, it has had many effects on the British economy. One of our major concerns since the vote has been about how drastically the value of the pound fell.

Against one of the biggest currencies, the pound was “18% lower than the dollar” (Monaghan 2016). As you can see below, the graph shows how the value of pound dropped when the decision of the referendum was released. Since then, the value of the pound has stayed low as people are still unsure of what is going to happen when the article 50 is triggered and the UK has left the EU completely. These effects below are only the start of the consequences to the UK leaving. People stopped investing their money in the pound worried about what was going to happen. As there was a drastic drop in the investments in the pound; at the same time there are businesses at this point in time deciding to move their businesses to another country. A big example is Vodafone as they are looking to move their headquarters. The reason they wanted to move is because they liked the free movement of people within EU as it was easy to get capital and goods around and it benefited the company. (Palmer, 2016)

(Trading, 2016)

The value of the pound is depreciating as you can see from the chart above, the prices of houses within the UK is falling. This isn’t due to the high supply; however, it is due to the outcome of the referendum as people are not buying houses as no one knows what other drawbacks are going to be because of the UK leaving. Citizens of the UK are not buying houses at this current time because they are considering whether it would be the best decision to make an investment in a house and stay in the UK or move abroad depending on what other consequences we are going to have to face because of the vote to exit the EU. As the decision was made by the UK to leave, there has been a “0.4%” increase in the inflation rates as you can see in the graphs below (Statistics, 2016a). As the pound fell, the demand for goods and services increased because when the pound is converted into different currencies, the value of the pound worked out cheaper for other countries to purchase. Therefore, this was taken as an advantage as they would be able to buy more for the price they pay now in comparison to before. As mentioned, the demand has increased so the prices of goods and services have also increased too which has a similar effect on tourism. This has had a positive effect on our economy as the employment rate figures have gone down as the more tourism we get the more jobs there are to keep up with demand.

(Ferreira, 2016)

Another impact on the economy due to Brexit is the inflation in pricing on trading. The independent movement of Britain deciding to leave the EU both will have benefits and drawbacks, as would if the decision was for Britain to stay in the EU. The implication of this decision on trading is currently taking place, it can either work in favour for Britain or it can be a decision the voters regret.

The key countries which the UK sells to within the EU are Germany, Holland, France and Ireland, which all combine to export a total of “£91.43bn” (Foster and Kirkup, 2016) annually. However, this is estimated to increase due to the introduction of tariffs, which concludes an increase in price for all those exporting goods and services. A professional economist, John Springford, has estimated that the tariffs would approximate between “2.2%-9% of GDP, costing an additional funds of £40bn.The tariffs will range from 32% on wine, 4.1% on liquefied natural gas, 9.8% on car items and wheat products ranging to 12.8%.” (Foster and Kirkup, 2016) However the biggest threat to the UK may not come from the introduction of tariffs, but from the threat from the EU implementing new regulations. If this is the case, Britain will have to find new ways in which they can work around any new rules and regulations, which could ultimately lead to an increase in pricing to export, causing a domino effect where the people of Britain are having to pay more for goods and services as the inflation rates have increased since the referendum by “0.4%” (Statistics, 2016a).

As the Brexit movement is currently taking place, it will certainly have a huge implication with the relationship between the EU and UK. “More than 50% of our exports go to EU countries”. (Brexit, 2016) this fact alone shows how much the UKs economy has relied on the EU for our trade to commence. A future impact this may have is on our GDP figures, if the EU stops importing our goods then this would impact us drastically as we export more than 50% to them. A result to this would be our exports decreasing and our GDP figures going down. Nonetheless Britain should not take this as a negative as it will certainly open more opportunities to trade with different nations, which could ultimately lead to a more beneficial deal. Unquestionably the link with the EU has held the UK back from investigating in emerging markets. No major trade deal has been made with those countries in Asia or Canada, which are all potential candidates for Britain to strike a deal. Now that Britain is becoming an independent country, they can finally make a decision on the best option for the people.

“The EU is currently negotiating with the US to create the world’s biggest free trade area” (Brexit, 2016). If the negotiations work in favour of the EU, Britain will certainly be at a huge disadvantage in terms of trade as goods and services will be much cheaper to distribute. As Britain is not a part of the EU, they will have negotiated a deal independently, which means time and money are crucial assets in this operation. If worse comes to worse for the people of Britain, a deal may not work in favour for the Brits, which will lead to new and commencing business to dig deeper into their finances, which could potentially harm new or vulnerable businesses.

Britain relies on import and export relations with the EU and the depreciation of the pound led to prices to rise is the most immediate effect of Brexit. Before Brexit, British farmers can gain 30 billion pounds’ subsidy from EU each year, and UK total income from farming comes from Common Agricultural Policy (CAP) support occupy 55 percent. CAP is a cornerstone of the EU, costing nearly 40% of its budget or 58 billion Euro one year. (Emily, 2016) Britain leaving the EU has an effect on the farmers as they would not be able to get subsidies using the CAP. This would mean they would have less money to spend which has an effect on the economy because if there is less spending then there is less demand for businesses which would have a domino effect on the employment because if the demand is low then less people would be hired which means less money in the farmers’ pocket and the businesses. Another effect it would have is a financial burden on the government because the farmers would want subsidies from the UK government which would increase government spending.

Britain is very dependent on the EU marketing. NFU president Meuring Raymond said:” the vote to leave the European Union will inevitably lead to a period of uncertainty in a number of areas that are of vital importance to Britain’s farmers.” (Paul, 2016, p2) This chart below shows UK import and export data. Data of total export relatively stable, however the data of total import continuously rising. Britain productive forces just meet 60 percent for consumer demand, 40 percent dependence on import. Every year 38 percent lambs, 3-million-ton wheat, barley, beef, high value added cheese and dairy products export from British to EU. For these reasons Brexit has many negative effects of import and export and farming welfare.

Everything has two sides, Brexit has brought some positive effects to UK. Looking at the situation in EU, compare with other countries the British are receiving 7 percent Eu farming subsidies. With the subsidies development Britain’s Market Competitiveness be hurt. Brexit help UK trading become liberalization and expand the market, before Brexit UK need abide by EU regulation and policies, as the second responsible country, UK have less sovereignty on farming and trading. There is no specific agreement to comply with EU regulation now, there will be more possibilities for the development of British farming.

According to the “Britain ‘s vote to leave the EU will plunge the country into a shallow recession in the second half of 2016, which could see the unemployment rate rise to 6.5per cent, the equivalent of around 500,000 jobs”. (Rodionova, 2016)

Britain leaving the EU will affect employment level in an adverse way, since there are some European businesses based in the UK. For example, Metro bank is a bank based in Russia but they also have a branch based in London so if the Metro bank was to close down, this will affect the economy and environment because as there would be an increase in unemployment if they decide to move their business out of the UK. This will lead in to people having less disposable income which will lead to them not having enough money to spend which would not boost the economy. The more the British economy does well, the more people would be attracted to migrate to the UK as it appealing for them to come settle here as Britain is a rich country and we have a lot to offer and help people. Another example is NatWest which is a European bank so if NatWest closes, the unemployment rates would increase as there would be a reduction in jobs if a business closes which leads to less people having a disposable income. Moreover “There were 31.81 million people with jobs in the three months to August, 106,000 more than the previous quarter and 560,000 more than a year earlier. The employment rate remained at its highest ever level of 74.5 per cent. At the same time, the jobless rate was frozen at 4.9 per cent but the number of people unemployed crept up by 10,000 between quarters. There are 118,000 fewer people out of work than the same period last year”. (Clements, 2016) According to “the forecast for GDP growth falling to 1.0% in 2016 and -1.0% in 2017, we can expect the unemployment rate to jump up to 6.5% by the end of 2017 as Credit Suisse analysts said. This expected rise in unemployment is likely to squeeze nominal household incomes as wage growth takes a hit”. (Rodionova, 2016)

(Statistics, 2016b)

Furthermore, if Britain leaves the EU it would reduce the number of foreign workers which will make the country less broad for example in skills. If people decide to leave, this would mean we are losing people with different abilities and skills. All this will result into people having less disposable income to spend. However, a benefit outcome is, more jobs available to the British citizens if foreigners decide to leave. The Housing market has also been affected by the Brexit as overseas property buyers are buying London properties after the shocking decision for the UK leaving the EU. In the UK, it is mostly foreigners buying properties, so the UK leaving the EU the housing market has fallen. For example, Estate agents in the UK have been swamped with calls from Chinese, Middle Eastern, Italian and Spanish buyers looking for a bargain after the pound tumbled to more than 30-year lows.

Crime rate will increase due to Britain leaving the EU because of the situation happening in Syria. The more migrants the UK takes, the more vulnerable to terrorist attacks we are and this is one of the main reasons people wanted to leave the EU as they wanted less chances of anything happening. If the crime rate increases, this would affect the economy as people would have to pay for taxes if more people are going to prison or if any attacks happen etc. “Hate crime surged in England, Wales and Northern Ireland in the second half of July nearly a month after the EU referendum vote and still remains at significantly higher levels than a year ago. The latest set of figures quietly released by the National Police Chiefs’ Council on Wednesday shows a 49% rise in incidents to 1,863 in the last week in July in comparison to the previous year. The week after saw a record 58% increase in recorded incidents to 1,787”. (Travis, 2016)

Brexit has caused uncertainty in Britain’s economy causing investments to freeze and house prices to fall “Nationally, prices went down by 0.9%” (Edwards,2016) in July and that was just the beginning.

UK’s central disagreement was based on its economy not being able to control the number of immigrants it was receiving due to its position within the stagnating EU. However, could this decision help the economy? Decreasing immigration would reduce the GDP of Britain. Less migrants from European countries would mean a decline in spending, that’s 5% (3.2m) of European migrants that pay government taxes towards the NHS and other public sectors. Controlling immigration would result in the limitation in the supply of skilled labour for UK’s health force thus increasing costs for the economy as they spend more on education. This is because the percentage of people coming from Europe are highly likely to be educated at 44% and are more likely to get into work, compared to 23% of British born (Dunford and Kirk, 2016), from the argument its shows Brexit is slowing the economy down.

Although, is the quantity of migrants from Europe enough to halt the growth in our economy? The UK closing its borders to EU nationals would not affect the immigrants coming from other countries, for example India and China, therefore it would not affect the GDP by far. To support this, BBC news reports the increase in growth in our economy: ‘Latest figures show that the economy grew by 0.5% in the three months after the Brexit vote’ (BBC,2016) proving the effect was positive but less than expected at 0.7%. At this point in time figures may not show the full impact of Brexit on the economy as it is recent, however the ratio of people outside of the EU are still greater than the ones within the EU coming to the UK, making the point valid for argument.

As the economy grows it attracts new bodies. This is because a growing economy offers great and better opportunities such as better jobs, more pay and better standards of living. How does this benefit the economy? The answer is clear, the monopoly effect. The graph shows the relationship between the number of migrants by citizenship compared to the on-going years. Furthermore, as it gets to 2015 it shows that non-EU and EU citizens have migrated to the UK at the same quantity causing Brexit to be less harmful to a variety of benefits migrants provide to the UK economy. Despite this this evidence may be uncertain as they are survey results and cannot be reliant, data shown may not actually show the real affect.

Brexit will cause a reduction in immigration from other European countries, this will lead to a loss of benefits that Britain gain from these migrants. One prime example: Nurses in the UK would decrease if people leave EU, this would result in the increase in spending for recruitment. Causing a deficit to the balance of trade and adding more to the debt the country already obtains. “Nursing leaders warned the government that if lower-earning non-EU workers were to be deported, the shortage of nurses in the UK could worsen and the NHS would have to spend millions on recruitment” (Grace, 2015).

Despite this fact, Brexit may also find its positive impacts to the UK’s economy. The economy would become less crowded, meaning the GDP per capita would increase. Even though evidence shows that GDP of Britain would rise by 0.4% the overall population would increase too thus decreasing the GDP per capita. This means by Brexit applying its rules to limit migration it would aim to increase the output of everyone individually rather than a nation by doing this the economy would benefit from more efficiency as less people would require to produce more hence bettering their incomes and benefiting their standards of life. “A previous study by the National Institute for Economic and Social Research, carried out for the European Union, found that the long-run impact of obdurate migration from Eastern Europe between 2004 and 2009 could actually depress UK GDP per capita by -0.17%” this means that if UK’s population continues to grow it would cause a decrease in the percentage for GDP per capita and the output per person would decrease one reason for this may be the loss of jobs due to overcrowding. (Green, 2016)

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