Brexit and the Economic Aftermath:
BREXIT advocates the separation of Britain from the European Union (EU). In other words, it is integrating the idea of divorce from the regional economic integration of the European countries. BREXIT stands for Britain plus Exit, the exit of Britain from the EU. The UK joined the EU back in 1973 to avoid political isolation and bring stability within the economy during the times of globalisation and the period post WW2. It leads to the discussion about fully implemented BREXIT and the Economic Aftermath. However, the UK wanted to leave the EU bloc for three primary reasons. These are,
- Protecting the country’s economy
- Political elitism with national sovereignty
- Immigration issues
The economic implications are based on five (5) complex BREXIT factors. These include,
- UK trade being governed by WTO rules.
- UK and EU Free Trade Agreement has been successful.
- the formation of the UK-US-EU Free Trade Agreement based on TTIP.
- the shape of the US-UK Free Trade Agreement without the EU.
- A prolonged implementation period in which tariff between the two does not alter. Instead, the two regions will apply non-tariff barriers.
Negative Impacts for the UK:
Firstly, the option for UK to follow the WTO rules after BREXIT will lead to an economic disadvantage. It is because the UK will lose its GDP by 5% after ten years of BREXIT. As a member of the EU, the UK is pocketing this share. The economic loss from the GDP alone will be around USD 140 Billion for the UK.
Before BREXIT, the UK enjoyed the benefit of controlling and ruling in the service and financial sector of the EU, hence dominating the country’s economy by 80%. However, this will not be the case anymore because of applying WTO rules to its trade. The UK will automatically move away from the benefit of no tariffs in trade and the EU standards of business.
It represents that under WTO rules, 1/3 of the UK trade will be free from trade barriers. In contrast, the rest would face a significant number of trade barriers, which would negatively impact the UK’s economy globally.
Problems of Socio-Economic Life Post-BREXIT:
Thirdly, due to reduced migration, it will be advantageous for technically skilled labour as their wages will be increased to some extent. However, this will negatively affect the GDP of the country. Fourthly, more and more businesses have moved out of the UK, transferring their offices, resources, and assets to their home country, hence there will be job losses in the country, leaving many youngsters and Britishers jobless.
$1 trillion has been transferred or moved out from the UK’s banks affecting the UK’s economy financially.
Lastly, Britain will also have to pay its divorce bill to the EU for leaving the bloc, which is $30 billion (according to the recent figures). Moreover, after BREXIT, the UK will lose its country’s attractiveness in the coming years. Thus, foreign direct investments (FDI) in various countries would refrain from investing in the UK. Moreover, it would be difficult for other countries or regional economic blocs to trust the government anymore.
The graph shows that there will be a more significant negative economic aftermath of BREXIT in the long term and short-term for the country than the positive financial aftermath after leaving the EU bloc in the coming five to ten years. However, considering the positive economic impact of BREXIT, the three-sided (trilateral) agreement among the leading countries with the UK (UK-US-EU) will assist the UK in boosting its economic health to some extent. It is believed that through this agreement, the UK will be able to generate a 7.1% GDP.
The UK will have access to the EU countries and the US and their markets for trade purposes. Secondly, after leaving the European bloc, it will be convenient for Britain to cut the regulatory costs and pay for the countries suffering (like in the EU, the UK had to pay for the EU nations suffering the financial loss).
Thirdly, as there will be less migration, hence there would be fewer non-UK citizens to send remittances to their home country and leaving Britain’s finances within the country. Furthermore, no wastage of the UK’s finances will allow the government to save more and spend more on its country’s welfare.
Article by: Alyeshbah Farooqi
Edited and Managed by: Javeria Qadeer