By Ayesha Baloch
One of the most significant impacts of Britain’s exit from the European Union will undoubtedly be on the economy of the UK, as the EU currently contributes to almost half of the UK’s overseas investment and export revenues[1]. As a result, in the short-term, any form of Brexit will be immediately detrimental to the economy, while in the long-term this could leave the UK far more vulnerable to the effects of global economic downturn[2].
With the most recent Brexit deal (a ‘hard’ Brexit, advocated by Conservative Party leader Boris Johnson), the UK economy would take a £70bn hit by 2029[3], according to a study by the National Institution of Economic and Social Research (NIESR). Under Johnson’s deal, the UK would leave the EU customs union, an agreement between EU countries stipulating that there are no tariffs on imports within the EU and that tariffs on imports from outside the EU are the same for all countries[4]. The deal would also mean a customs border between Northern Ireland, which would leave with the UK, and the Republic of Ireland, which would remain in the EU. NIESR has also concluded that through this ‘hard’ Brexit deal, the UK’s GDP growth rate would fall from 1.2% to 1% by 2020[5], causing the overall GDP to be 3.5% lower in 10 years’ time[6], compared with if the UK remained in the EU.
Although Brexit would stop the UK’s payments to the EU budget, and thus potentially increase savings for public finances, this would be nullified in the event of a GDP loss of more than 1%[7]. If the loss is greater – an incredibly likely scenario – public finances will be far worse off. A hard Brexit would cause the pound to depreciate in value, meaning an increase in prices for goods, yet a decrease in the value of wages. The UK would also become a far less attractive destination for foreign investment[8].
On the other hand, in the event that a deal is not passed through parliament, a ‘no-deal’ Brexit would occur. The legal consequence for the UK would be to adopt a World Trade Organisation (WTO) relationship with the EU. The implementation of WTO laws would cause the British economy to shrink by 5.6%[9], meaning a loss of approximately $140 billion[10]. These laws would hinder the ability of British businesses to sell services to EU countries, and thus harm the service sector, which currently constitutes around 80% of the UK’s GDP[11]. A no-deal would mean the loss of trade, investment and technical knowledge, with an OECD report estimating that the UK could be plunged into economic recession as early as next year[12].
While negotiations have ceased in the last few weeks in view of the upcoming election, the general consensus is that Brexit will undoubtedly have largely negative, and lasting repercussions on the UK[13]. Economically speaking, the best option for the UK would be to remain in the European Union where, for decades, the free movement of goods, services, people and capital have been invaluable to the UK economy[14].
References
[1] Oxford Economics. “Assessing the Economic Implications of Brexit.” Oxford Economics, 2019, www.oxfordeconomics.com/brexit.
[2] Inman, Phillip. “UK Growth Will Dip to 1% Even If No-Deal Brexit Avoided, Warns OECD.” The Guardian, 21 Nov. 2019, www.theguardian.com/business/2019/nov/21/tories-no-deal-brexit-plans-damage-uk-economy-oecd-eu.
[3] “Brexit Deal Means ‘£70bn Hit to UK by 2029'.” BBC, 30 Oct. 2019, www.bbc.co.uk/news/business-50219036.
[4] Reality Check Team. “Brexit: What Is in Boris Johnson's New Deal with the EU?” BBC, 21 Oct. 2019, www.bbc.co.uk/news/uk-50083026.
[5] Inman, Phillip. “UK Growth Will Dip to 1% Even If No-Deal Brexit Avoided, Warns OECD.” The Guardian, 21 Nov. 2019, www.theguardian.com/business/2019/nov/21/tories-no-deal-brexit-plans-damage-uk-economy-oecd-eu.
[6] “Brexit Deal Means ‘£70bn Hit to UK by 2029'.” BBC, 30 Oct. 2019, www.bbc.co.uk/news/business-50219036.
[7] Begg, Iain, and Fabian Mushövel. Hearing 11: Economic Impact of Brexit. LSE, 2016, www.lse.ac.uk/europeanInstitute/LSE-Commission/Hearing-11-Economic-Impact-of-Brexit.aspx.
[8] Campos, Nauro F. “Conservative Promise of a Hard Brexit Would Be Worse for the UK Economy than Labour’s Radical Spending Plans.” The Conversation, 10 Dec. 2019, http://theconversation.com/conservative-promise-of-a-hard-brexit-would-be-worse-for-the-uk-economy-than-labours-radical-spending-plans-128570.
[9] “Brexit Deal Means ‘£70bn Hit to UK by 2029'.” BBC, 30 Oct. 2019, www.bbc.co.uk/news/business-50219036.
[10] Ries, Charles P, et al. Examining Economic Outcomes After Brexit. RAND Europe, 2017, www.rand.org/randeurope/research/projects/brexit-economic-implications.html.
[11] Ibid.
[12] Inman, Phillip. “UK Growth Will Dip to 1% Even If No-Deal Brexit Avoided, Warns OECD.” The Guardian, 21 Nov. 2019, www.theguardian.com/business/2019/nov/21/tories-no-deal-brexit-plans-damage-uk-economy-oecd-eu.
[13] Begg, Iain, and Fabian Mushövel. Hearing 11: Economic Impact of Brexit. LSE, 2016, www.lse.ac.uk/europeanInstitute/LSE-Commission/Hearing-11-Economic-Impact-of-Brexit.aspx.
[14] Campos, Nauro F. “Conservative Promise of a Hard Brexit Would Be Worse for the UK Economy than Labour’s Radical Spending Plans.” The Conversation, 10 Dec. 2019, http://theconversation.com/conservative-promise-of-a-hard-brexit-would-be-worse-for-the-uk-economy-than-labours-radical-spending-plans-128570.