BPS Economist Club
Turning people's good intentions into actionable steps
Team Essay 3
The Various Impacts of Brexit
Overview
The UK's withdrawal from the European Union has not been without its challenges. Britain's economy was also adversely harmed by this action, which minimised trade with the EU. Due to increased paperwork, trade restrictions, and customs checks, their exports appear less attractive due to their high cost, resulting in higher expenses for businesses and consumers in the UK. Springford projected in 2022 that Brexit had cut UK trade in goods by around 13%, and since then, the UK's goods trade had underperformed other advanced economies by about 15%. In addition, this exit had an influence on its investments from businesses and investors because it caused uncertainty in its growth, making it harder for enterprises to function. Furthermore, the UK is no longer eligible for many EU financing programmes, which may have an impact on areas such as R&D, agriculture, and regional development. This may impede innovation and economic progress in certain sectors.
Impacts on the UK’s Financial Market
Ever since Brexit, the UK financial market has been fluctuating; it has been unable to return to its initial position. The FTSE100 share index (an index of the 100 companies listed on the London stock exchange) clearly indicates the UK's serious economic volatility and according to the Wall Street Bank, the United Kingdom's GDP expanded 5% slower during the last eight years than other comparable countries. Brexit has led about 440 banking and financial institutions to exit the country along with 10% of UK bank assets going to the EU.
Even before it happened, the effects of Brexit on the UK economy were clearly evident in trade, investments, employment rates, exports, imports, and even the car sector. In October 2021, commerce with the EU decreased by over 15%.
• London was replaced by Amsterdam for European share trading and London's derivative share trading lost ¾ of its euro volume to Amsterdam and New York.
• The UK's international trade with non-EU countries such as China, Singapore, and South Korea in terms of financial services imports improved.
• The UK's non-EU imports have increased to 16% due to the import of Tesla cars from the US and China.
• About 2,00,000 EU nationals left Britain by 2020 which resulted in a shortage of staff in sectors like retail, drivers, and hospitality.
Impacts on the UK Automobile Industry
Before the Brexit, the UK imported about 70 percent of their cars from the European Union, however in 2020 soon after the Brexit, sales of cars fell dramatically. Giants in the automotive industry also saw the impact of the exit, with Honda shutting down its factory in Swindon and Nissan and Ford planning on pulling out of the UK economy.
Brexit also raised the average price of cars which led to low demand and over 1000 employees from Jaguar and Land Rover (some of the biggest UK car manufacturers) have been made redundant in 2017. However, the demand for electric vehicles in the UK has increased over time and imports from China and US have risen by around 16% in recent years. Many experts speculate that the UK automotive industry is never likely to return to its productive capacity before the Covid-19 pandemic.
Positives
However, there are some advantages to "Brexit": the UK has struck new trade arrangements with nations including Australia, Japan, and New Zealand, and is negotiating with others.These treaties, which are not associated with the European Union, have the potential to open up new markets for UK industries and increase exports. The UK's departure from EU laws may allow businesses to be more flexible and react to changing market conditions.However, the UK government has imposed restrictions similar to the EU. The UK now has more authority over immigration policy, which might help alleviate labour shortages in specific areas.However, the long-term influence on the economy remains unknown. This change also reflects an increase in the number of visas (both work and student) being issued to citizens of other countries, counterbalancing the decrease in EU nationals visiting the UK. The influx of other nationals, particularly from India, Pakistan, and Nigeria, has boosted the number of skilled workers in the labour force.
Written collaboratively by the BPS Economics Club