THE IMPACTS OF BREXIT IN THE UK’S GLOBAL ECONOMY COMPETITIVENESS

 

The United Kingdom has been hailed as a haven for starting business and different investment ventures, but this stands to be significantly affected by the current vote to exit the European Union with the move severing the free trade ties between the UK and EU’s economies. As a trading bloc, the EU has helped translate benefits through access to high-quality goods and services at lower expenses. Reduced cost of products, services and labor movement has seen increased sales and profits. Increase trade has in response spearheaded higher productivity, better incomes, and living standards (Finck, 2017). The Brexit has significantly aggravated the economic well-being of the United Kingdom. Increased instability is predicted to negatively impact on the consumption, foreign trade and even reduction in investments. The exit from the Single Market is anticipated to put strains on the economy due to increased costs of business and movement of labor. The British pound fell to the lowest level in three decades after the exit vote with inflation expected to rise consequently.

With the UK exporting almost half of the total global exports it is supposed to sustain losses worth billions of euros if a new trade agreement with EU is not in place when they leave the single market. As a result, the country’s competitiveness in the EU and global markets is anticipated to take a plunge with increased operational tariffs translating to low profits. The move also digs into the country’s GDP with implications taking a share between 1.5 to 3.9% while 8.8% lowers the exports. The rate of unemployment is, besides expected to rise with estimates recording an increase to 6.5% attributed to the recession (PATHMARAJAH, 2016). The numbers of immigrants considering jobs outside the UK has dramatically increased and could compromise the nation’s labor competitiveness, with huge gaps expected to add stress in demand for skilled workers and suppliers. This will profoundly lower the productivity of its systems.

Besides, half of UK’s foreign investments come from the rest of the European Union with trade relations after Brexit expected to decrease investments’ prospects in the UK significantly. Analysts predict a 22% decrease in the foreign direct investments (FDI) following the exit with lower trade owing to greater obstructions to trade. Besides losses in the United Kingdom, the rest of European Union members will also feel the pinch with estimated combined losses amounting to between 12 and 28 billion euros. Countries deeply hit by the Brexit trade the most with the UK, such as Ireland, Netherlands, and Belgium (Ponzano, 2016). After the Brexit, the UK is set to miss out on trade deals and future market integration within the EU as well as any future reductions in intra-EU trade costs which have been declining at a rate of 40% faster compared to OECD (Organization for Economic Cooperation and Development) countries.

The Brexit will enable the UK to control and prohibit the free flow of immigrants from the EU, disregards the EU guidelines when taxing and even do away with EU membership fees and budgetary contributions (KOCH, 2017). However, choosing to remain in the Single Market would require the UK to make payments to the EU as does Norway, a member of European Economic Area. Furthermore, the European Union needs members in the Single Market allow free flow of labor even if they are not members of European Union’s Customs Union like Norway and Switzerland. Though the UK could adopt Norway’s trade relations, significant changes in the market would not strengthen its competitiveness as an outside member. This is the ‘soft Brexit’ hypothesis, and most trade relations would be maintained with no dire implications on the cost of doing business. In the ‘hard Brexit’ analogy trade would be governed by World Trade Organization guidelines and would impose higher trade costs (Chalmers, 2017). It would, however, save on much of its present financial obligations to the EU, being outside the EEA. Included are public finance components excluding those made to higher learning institutions, firms and non-governmental bodies, sponsored by the agricultural grants in the EU’s Common Agricultural Policy.

Income drops by 1.28% based on the present and predicted dynamics in non-tariff barriers in the former while the losses rise to 2.61% in the latter. The exit of the United Kingdom puts it in a position where it can liberalize its import policies with protagonists asserting the abolition of all tariffs on imports into the UK would reflect on the low pricing of imported goods (de Witte, 2017). This, however, remains to be seen with the relatively low political motivation for such policy changes. Nevertheless, trade can be robust by increasing competition but cuts down on supernormal profits while fostering efficiency. Such market operations promote innovation and even the quality of good and services offered. Also, if the UK joined another market, such as the EFTA (European Free Trade Association), the trading outcomes would fall by a quarter by trading with countries in the European economies. Besides, joining EFTA would bring down the UK’s incomes by points ranging from 6.3 and 9.5%. This undermines its economic credibility taking into account that UK’s GDP skyrocketed between 8.6 and 10.6 % when in the European Union.

With no obligations to its largest trading partner, the United Kingdom could pursue trade relations with other countries such as the United States, China, India or even other emerging economies. These trade partnership, however, do not come close to offset the United Kingdom’s plummeting competitiveness (Fugazzi, 2015). This owed to the fact that almost half of the UK’s trade transactions are with member countries within the EU. With an overall GDP fall estimated at between 26 to 55 billion euros, stable and more formidable trade partnership could take years for a turnaround.

The economic repercussions of the UK parting ways with its largest trading partner can only be assessed by analyzing the policies that the country puts into action to counter the financial imbalance already at play. Reduced trading capabilities will be synonymous with the exit as the European bloc was the preferred destination for most of its exports. The workforce relations will also affect how goods and services are delivered with the United Kingdom taking a strongly defiant stand on imposing stronger border controls against EU citizens, a fact not well received in the Single Market (HAQUE, 2017). How the nation prefers to trade will also determine the kind of investment and partnership developed besides the motivations underlying the associations.

 

 

 

 

 

 

 

 

 

 

 

References

Chalmers, D. (2017). LSE Law Brexit Special #4: Trade after Brexit. SSRN Electronic Journal.

Dallago, B. (2016). The future of European integration and Brexit: Is Brexit only Brexit?. Acta Oeconomica, 66(s1), pp.111-136.

de Witte, F. (2017). LSE Law Brexit Special #1: Negotiating Brexit. SSRN Electronic Journal.

Eliot, G. (2016). The mill on the Floss. New York: Open Road Integrated Media.

Finck, M. (2017). LSE Law Brexit Special #3: Brexit and the European Institutions. SSRN Electronic Journal.

Fugazzi, S. (2015). Brexit?. [S.l.]: ABC Economics.

HAQUE, F. (2017). BREXIT. [S.l.]: ERLY STAGE STUDIOS LTD.

KOCH, I. (2017). What’s in a vote? Brexit beyond culture wars. American Ethnologist, 44(2), pp.225-230.

PATHMARAJAH, S. (2016). BREXIT. [S.l.]: NEW GENERATION PUBLISHING.

Ponzano, P. (2016). Borderless Debate: After Brexit, What Will Happen? After Brexit, What Should the European Union Do?. The Federalist Debate, 29(3).