Friday, July 29, 2016

Summary of the Brexit Impact on UK Economy

Experts have been arguing on their blogs, on live talk shows on TV etc that leaving the European Union would cause significant damage the UK Economy. As you might have seen in the various articles in this Brexit Series, am a little skeptical of these Extreme claims.
Yes, it is nearly impossible for the UK to come out unscathed post Brexit because it has been a pivotal member of the EU and its economy is tightly coupled with the EU Economy. However, as I said before, the extreme claims made by some economic experts may not be so true.
Many of the negative effects from the separation of the UK ultimately stem from the loss of many benefits that the EU brings to its member states. Holding the status as the gateway to the EU, the UK has actually enjoyed being a financial and trade hub for foreign multinationals for many years now. A Brexit would threaten this status and potentially create havoc if firms start to relocate and pull funds out of the UK.

For the Brexit to be beneficial to the UK, the British Parliament would have to put in place policies to ease the economy into the transition so as to prevent the immediate short term shocks from rocking trade and employment. Its ability to weather these shocks would also depend on the UKs ability to quickly reestablish free trade rights with the EU, returning the UK to its previous title as the “Gateway into Europe”

On the global front, the value of the British voice in international politics may see the UK being sidelined in areas such as environment and international security. This assumption is taken from the fact that being an independent state, its influence would be smaller than the EU as a whole. However, if successful in obtaining independent trade deals with US & China, the growth in the UKs economy may uplift the UKs overall importance in the global economy.

In reality, it is possible that Brexit will have a modest negative impact on economic growth and job prospects in the UK in the near future. At the same time, this Brexit gives the UK flexibility to customize its immigration & trade policy to its advantage. This will eventually help offset the negative impact in long run and even be a potential blessing in disguise.
If they are able to sign favorable trade deals with foreign nations, tighten up the immigration system and optimize the funds saved on the public spending side, they could potentially boost their economy and GDP.

To Summarize, below are the areas where the UK will stand to Gain & Lose as a result of this Brexit.

Areas of Gain:
1.    Lower Regulatory Rules (Ones that get applied by virtue of the EU Membership)
2.    Savings on Public Money contributed towards the EU Budget
3.    Ability to Negotiate Favorable Trade Deals Freely
4.    Ability to Customize their Immigration Policy to suit their Needs

Areas of Loss:

1.    Potential Fees & Tarrifs on exports to the EU
2.    Loss of Access to the Single Market
3.    Direct Impact to the City of London
4.    Potentially lower FDI

Disclaimer: All views presented in this article are those of the Author and are not endorsed by anyone. While every effort has been made to ensure that the data quoted and used in this article is reliable, there is no guarantee that it is correct, and the Author accepts no liability whatsoever in respect of any errors or omissions. This article is only economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or investments.

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