Consequences of Brexit

Introduction

In the year 2016, United Kingdom is remembered for holding a referendum that saw 51.9% of the electorate supporting the move by UK to leave the European Union. The outcome of the referendum came as a shock with the results creating a short-lived turbulence in the global markets with the effects touching on the businesses, and consumers alike. The key factor behind the uncertainty revolved around lack of clarity especially on the post-EU membership and the accompanied ripples that would have affected the movement of capital, goods, labour and services the member states. Based on this preamble, the discussion focuses on seeking insights regarding the impacts and consequences of Brexit on the UK firms as well as consumers.

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Brexit on UK economy

In relation to the UK firms, Brexit has increasingly been associated with the economic backdrop. The National Statistics indicated that in the year 2016, United Kingdom exported goods and services worth £241 billion to the European Union, which accounted for the 43.9% of the UK exports. On the other hand, the imports to the United Kingdom could be valued at £312 billion, which accounted for 53.4% of the total imports. In the face of Brexit, it was anticipated that the exit would have had severe impact on the economy and the relationship the country had with other EU member states (Hantzsche et al. 2019). However, the outcome remains mute with the global economy showing a significant recovery. At the same time, signs of economic are imminent as a result of increased levels of risks and uncertainty as linked to the economic growth. Consequences for the UK firms can be felt in terms of the trade, foreign direct investments and the number as well as type of workers.

Another consequence can be felt in terms of the foreign direct investment. UK is one of the significant recipients of FDIs with around 42.6% coming from the EU countries. It is worth noting that Netherlands became the largest EU investor across United Kingdom. Therefore, Brexit is likely to ruin the attractiveness of UK to the foreign investors. Three reasons are aligned to this outcome. First, operating from one of the EU countries is attractive to most of the large multinational companies known for having complex networks of the supply chain. Besides, the EU single market taps into common regulations which reduce the coordination costs. Therefore Brexit ruins this chance.

Brexit and ease of doing business

Secondly, Brexit is likely to ruin the free movement of capital as it becomes hard for the EU member states to invest in UK. In terms of the number and the type of workers, Brexit is seen to precipitate changes in the immigration policy (Tetlow and Stojanovic 2018). This means imposing restrictions to the EU nationals, or even a more specific type of the migrants. Such restrictions may ruin the UK’s productivity and impeding the UK born workers to learn fresh skills from the reduced number of immigrants. At the same time, the reduced inflow of workers may have a positive impact on the productivity enhancing technology as well as machines as a result of reduced dependence on the supply of workers.

On the consumers’ side, it is evident that the economy seems not to have suffered the decline predicted by most of the commentators. However, it cannot be ignored that there has been a significant impact especially on the personal finances. NIESR has indicated that every British household is more than £600 a year worse off as a result of the referendum. Since the beginning of the year 2017, there has been a consistent inflation growth ahead of the consumers’ wages. Due to this, consumers are encountering episodes of spending squeeze the real wages decline.

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Conclusion

In conclusion, it can be noted that Brexit has a number of consequences. On the side of UK firms, the consequences touch on the FDI, trade, and workforce. On the side of consumers, the impact falls on the wages of consumers and inflation, which is increasingly touching on the lives of people.

References

Tetlow, G. and Stojanovic, A., 2018. Understanding the economic impact of Brexit. Institute for Government, pp.2-76.

Hantzsche, A., Young, G., Aidt, A., Chadha, C.S., Sabourian, S., Hantzsche, H., Kara, K., Young, Y., Hantzsche, H., Kara, K. and HM Government, 2019. Prospects for the UK Economy. National Institute Economic Review, 248(1), pp.F4-F33.

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