Effect of Brexit on the UK Economy

Many academic and non-academic writings tackled the issue of Brexit from different angles. The focus will be one important aspect of Brexit; that is the economic part; i.e. the effect of Brexit on the economy of UK after being outside the EU. The UK, government’s White Paper (Department for Exiting the European Union) suggests headlines of taking the UK out of the EU. In this White Paper, the aspect of the economy is covered on different headings such as protecting the rights of the worker and securing free trade with European markets (The White Paper, Policy paper The United Kingdom’s exit from, and new partnership with, the European Union, 2017). It reflects how important this issue is for the UK government, as well as for all UK people. What is clear that there will be many positive and negative economic implications for both parties EU and UK after Brexit! This essay sheds light on two main issues related to the UK economy after Brexit. First, the signal market, the definition, the status of UK in the signal market after leaving EU, the expected scenarios. Second, the economic relationships between the UK and other countries of EU. The expected options mentioned here are based on the current relationships between the EU and some countries that are not full members of the EU.

To start with, what is the meaning of the Single Market? According to European Commission website, Single Market indicates the EU as one territory that has no internal borders or any other controlling complications that lead to the free movement of booth services and goods (The European Single Market – European Commission, 2017). According to the same source, single market has great benefits. It encourages competition and trade, increases efficiency, promotes quality, as well as helps in cutting the prices. In addition, the same source considers the European Single Market as one of the EU’s ultimate accomplishments that powered the economic growth and made the everyday life of European businesses and consumers easier (The European Single Market – European Commission, 2017).

On the other hand, UK is playing a major role in the single market. Thus, by leaving this market, UK can direct this budget to a new direction that suits its economy better. The UK is ranked in the top five economies in the world, after United States, China, Japan and Germany (Bajpai, 2017). After Brexit, Bajpai expects the raking of the UK to decline and that UK will be ranked the 7^th, taking the place of France (Bajpai, 2017).

Dhingra and Sampson in their article Brexit and the UK Economy, claim that after leaving the EU, the UK will no longer be constrained by the EU’s external tariff. On the other hand, the UK can set its own MFN[1] tariffs on imports. The UK could adopt to reduce its import tariffs below the levels of EU in order to lower import costs for UK consumers and companies. This will result on increasing the competition played by businesses run in the UK (Sampson, Dhingra and Sampson, 2017). In addition, the same article, states that there is a limited scope for further tariff decreases. According to the World Bank, the tariff rate of the EU (applied and weighted mean for all products) is 1.5% (Word Bank, 2017). Also, if UK goes for this it will require more harmonising polices, regulations or product standards across countries. Achieving this level of business requires international agreements with different countries. The overall effect of Brexit is still estimated to be negative (Dhingra and Sampson, 2017 4-5). These circumstances make it very difficult for the UK to reduce tariff rates, yet possible.  

The second essential issue in the UK economy after Brexit is the economic relationships between the UK and other EU countries. Clarke, Goodwin and Whiteley in their book Brexit Why Britain Voted to Leave the European Union, suggested three scenarios regarding the relationship between the UK and other EU countries. They based their expected scenarios on existing relationships between the EU and non- member states. First scenario, ‘Norwegian’ option, where Norway is not an EU member state but has full access to the single market, which is called European Economic Area (EEA), where Norway has to pay for this privilege by contributing to the EU budget as well as accepting free movement of labour. In other words, UK can leave EU and pay to access EEA. The second option is based on a mutual agreement with EU, like Switzerland and Canada. A Comprehensive Trade Agreement between the EU and Canada made it possible to lowers tariff barriers, coordinates trade arrangements and encourages cooperation, yet does not include free movement of labour. The third and last option is, World Trade Organization (WTO) that is arising from trade agreements negotiated by the World Trade Organization over many years between a massive number of countries that are aiming to shrink tariffs and other obstacles to trade (Clarke, Matthew and Paul, 2017: 176).

The report UK trade options beyond 2019, published by House of Commons, International Trade Committee suggests some of the above-mentioned scenarios. The report mentioned some options that the UK might have after Brexit. First, “No deal”-trading under WTO rules alone. Second, “No deal”-Trading under WTO rules alone. Third, UK Free Trade Agreements with non-EU countries. For each option, there are details about the expected sequences (Committee, 2017).

The international ranking of UK economy might go backward at the first couples of years after Brexit until the government makes new trade agreements with different counties and organisations around the world. Afterwards, the UK economy might go better or worse than before. All the above-mentioned ideas are uncertain. It is very clear that the government is working hard to leave the EU will minimum loss possible. No one can tell the exact actions taken by both EU and UK until the negotiation is over and both the UK and the EU sign the final leaving agreement.

Bibliography:

Bajpai, P. (2017) The World’s Top 10 Economies | Investopedia, 07-07-2017. Available at: http://www.investopedia.com/articles/investing/022415/worlds-top-10-economies.asp (Accessed: 15 October 2017).

Clarke, H., Matthew, D. and Paul, C. (2017) Brexit Why Britain Voted to Leave the European Union. Cambridge University Press. doi: 10.1017/9781316584408.009.

Committee, I. T. (2017) UK trade options beyond 2019. Available at: https://publications.parliament.uk/pa/cm201617/cmselect/cmintrade/817/817.pdf (Accessed: 15 October 2017).

Dhingra, S. and Sampson, T. (2017) ‘Brexit and the UK Economy’, A series of background briefings on the policy  issues in the June 2017 UK General Election, p. 13. Available at: http://cep.lse.ac.uk/pubs/download/ea040.pdf (Accessed: 9 October 2017).

Sampson, T., Dhingra, S. and Sampson, T. (2017) ‘Brexit and the UK Economy Swati Dhingra and Brexit and the UK Economy’, (June), p. 14.

The European Single Market – European Commission (2017). Available at: https://ec.europa.eu/growth/single-market_en (Accessed: 10 October 2017).

The White Paper, Policy paper The United Kingdom’s exit from, and new partnership with, the European Union (2017). Available at: https://www.gov.uk/government/publications/the-united-kingdoms-exit-from-and-new-partnership-with-the-european-union-white-paper/the-united-kingdoms-exit-from-and-new-partnership-with-the-european-union–2#strengthening-the-union (Accessed: 11 October 2017).

Word Bank, T. (2017) EU Tariff rate, applied, weighted mean, all products (%). Available at: https://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS?end=2015&locations=EU&name_desc=true&start=2010 (Accessed: 13 October 2017).

[1] MFN: most favoured nation