Global Impact Of Brexit For British Economy

Historical Background of the European Union

Discuss about the Global Impact of Brexit for British Economy.

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In recent globalized world, the nations are compactly connected through business trade and market participation. Any event in any corner of the world infiltrates the consequences through all over the world that is where the analysis receives sits utmost importance.

One of the very recent global event has been BREXIT that is Britain taking an exit from the European Union after almost 44 years of its joining in 1973. This definitely affects the economic and political conditions of the UK as well as other EU member countries that have been strongly linked to UK through trade and finance (Schiereck, Kiesel and Kolaric 2016). The major concern of the discussion in the paper is how the decision of Brexit would affect the economy of UK as well as other EU countries. The decision of  Brexit would now allow UK to connect to many of the countries lying outside of the European Union through the channel of international trade and business This would certainly call for new dimension in the growth of British economy.

It has been found that major impact of the decision on international trade has been reduction in EU trade with UK whereas increase of UK trade with other non-EU nations (, 2016) There has been less immigrants post-Brexit situation that allows unemployment to be managed properly (Ebell and Warren 2016). Another striking and instant impact  has been declining value of the pound as compared to dollar and euro. The impact of the decision has not only affected the economy of UK but also the entire EU members nations as well as the countries lying outside EU through the linkage of international trade.

Based on Maastricht Treaty, the European Union was formed in 1993 unifying 28 countries of Europe economically politically. Almost over 510 million populations are included in this union that sets its own rules and policies (Nunez-Ferrer and Rinaldi 2016). The economic condition, political situation and society as whole of all the member nations are consider din order to make laws that takes into the of the national law and security of the member states. The power of the individual sovereign states is comprised in it. Through standardization of law and order applicable to all of the EU countries there exist one single market that allows free movement of goods and services, people and capital within all of the member states.

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The history of origin of EU traces  a long term gradual integrating process starting since 1945. The formation of EU is backed by the demand of its member countries. Post second world war Europe remained divided between largely democratic western nations, Communists and soviet dominated eastern bloc.  War devastated Germany’s future direction of the rebuild spread fear among the nations that gave birth to the idea of federal European union that would bind the nation into the democratic institutions created in pan-European set up. The main idea was to stop Germany from starting war with any other allied nations as well as put a resistance in the expansion of communist in the east.


The motive behind forming EU was to end the seed of frequent wars between European nations and its neighbors.  In 1950, the effort of European Coal and Steel Community started uniting these countries in terms of economics and politics to secure peace. Based on the Treaty of Rome, Common Market or European Economic Community built up.


This period was known as good economic period as the countries under EU brought down all custom duties and charges to zero while trading with one another  (Busch and Matthes 2016).To ensure enough food supply and eatables available to individuals. The EU members agreed upon joint control in the food production.


In 1973, UK along with Denmark and Ireland took membership of EU.

Policies regarding regional issues start transferring huge amount of money in poor areas with aim of job creation and strengthening infrastructure. The influence of Parliament of Europe started increasing. The adoption of laws by EU to protect environment and fight pollution was done.


The Single European Act in 1986 was signed that formed the basis of the six year log program aiming to sort out trade related issues across EU borders with creation of single market

1990- 19999

Single market notion is completed with freedom of flow of goods series money and people.  Treaty of Maastricht (1993) and Treaty of Amsterdam (1999) came into form and shaped the EU functioning. More members get added to EU like Sweden, Finland Austria.

2000 – 2009

Euro is made as new currency and adoption it among European Union countries become widespread. Closer integration between members are ascertained through strong defense and security to fight against crime. The financial crisis of 2008 hits the EU nations along with its global impact. The Treaty of Lisbon making provision of modern way of functioning with efficient institutions gets ratified.

2010- Today

The global economic crisis hurts Europe. EU provided much support to the trouble stricken countries to combat their difficulties and bring back economic stability. For that it established Banking Union to make banks reliable amidst turmoil.

The greatest role and impact that UK economy  has on European Union is the huge contribution to its budget. The exit of the UK from EU has left a biggest question regarding how to bridge the gap that is going to be created post-Brexit situation when UK stops to pay for the bill. UK denides to pay bill worth 60 million euro that was charged by EU in order to compensate for the commitments and liabilities share that UK has to pay pensions of its workers. There are also many UK based projects which received funding approval from EU hence the retrieval was needed. The departure of UK with no payment creates burden for the existing members who are unwilling to bear it to compensate the share of UK. As per 2014 data, UK possesses 4th rank after Germany, France and Italy as the national contributor to EU budget (Nunez-Ferrer and Rinaldi 2016). The total made by UK was of 11.34 billion euros to the total budget of 116.53 billion euros. In 2015, this figure reached to 18.20 billion euros  out of a total of 118.60 billion euro being the 3rd largest contributor. Not only UK contributes but also receives funding from EU. The amount of fund received by the UK is invested mostly in the development projects in the region and upgradation of agriculture. Moreover the funds of EU are used in combating terrorism, create employment and invest in  different projects going on in non-EU countries. The administrative expenditure incurred after all the institutions and schools run by EU for ites employees children are also included in the budget.

The UK also provides greater labor force participation in EU institutions as well as the nation .falling under it. The average share of nationals of UK working in EU is around 4.2%. Out of 45,845 employee 1800 belongs to UK nationality consisted of permanent as well as temporary staffs employed in EU. European Commission employs 52 UK based staffs and 17 members are employed successfully in the Parliament of Europe. The exit bill declares relocation of EU institutions established in UK. All the EU agencies set up in UK needs to be moved back.

Another important role UK exert on EU is its total trade as almost 50% of the EU trade has UL as destination. The EU member countries are greatly linked with UK in form of export and import thus U playing important role in their national economies.

David Cameron, the former prime minister of UK forecasted an economic downfall post-Brexit situation and he was totally in favor of carrying out the membership. The referendum of Brexit coming into operation first hit the national currency very bad (Coyle 2016). It steeply declined and reached 10% low as compared to dollar and 15% low as compared to euro. The greatest factor motivating Brexit decision has been alarmingly high amount of immigration in UK which is expected to remain still much higher even after successful exit taken by UK  (Portes and Forte 2017). This is due to a large ratio of European nationals are dependent on economy of UK to earn livelihood. The major impact on the economy of UK post Brexit would be fall in national exports and imports (, 2017). UK is the largest trade destination for the EU members as a result the trade relation would be hampered by great extent. Post Brexit cost of trade faced by UK would rise as it won’t gain the benefit of reduced custom duty and other taxes that were relaxed earlier within EU nations. The loss of trade is evident hence stemming from higher tariff and non-tariff barrier implemented in the international trade. This further reflects in to reduction in the national income of the country reducing GDP and growth of GDP as well. The decision of Brexit imposes more property risks in the market for property that faces huge uncertainty. Brexit is expected to generate volatility mostly short term though there is possibility of positive improvement in the long run. In terms of FDI the country is still attractive destination that has kept the confidence of investors high and robust. The growth of the economy is estimated to be 1.8% in 2016 following Germany that records 1.95 growth rate among the industrial countries of G7  (Mendez-Parra, Velde and Winters 2016).

In the history of the British international relation, the referendum has been significant incident having far-reaching impact on the domestic as well as global economy. The Brexit decision has been able to instigate the political scenario of the whole Europe.  A recent poll conducted by YouGov suggests majority of six countries out of 7 have wished to take an exit from the EU. Majority of European population believe that post-Brexit the exit of the nations would raise (Dhingra et al. 2016).  In opinion of the political risk analysts, the broader picture of the effect of referendum is beyond the the worldwide presence of euro skeptic and populism. The  referendum provokes nations under EU to take decision of leaving though the process would not  be that immediate and fast track due to the complex legalities involved in leaving process of EU.

The net outcome of the  BREXIT decision is vague as there are some pros as well as cons of the decision that have come out clearly. The exit is going to hurt the EU economies very hard. The share of UK’s contribution in the EU budget, huge volume of trade incurred with EU by UK and large number of UK workers in the EU firms play important role, which is now going to be affected, and disrupted leaving harsh impact on the countries connected globally with UK (Ottaviano, Pessoa, Sampson and Van Reenen 2014). But this decision to some extent carries benefit for the nation too in form of lesser immigrants into the country that worsens the unemployment problem of the nationals. Moreover EU countries are less in  numbers compared to various non-EU countries with whom UK now can be connected through trade. The trade volume would increase and that would further increase the revenue earned by UK (Colantone and Stanig 2016). This would boost the overall health of the economy. The decision of leaving single market in order to participate in the larger global market hence totally justified.

There are two types of Brexit existent and differs watt s very terms and condition underlying the draft of the decision. The hard-brexit indicates UK’s leaving the entire EU which is driven by single market mechanism. Leaving the market would dismal the market balance and bring instability channelized through reduced trade transactions taking place between nations (Wadsworth, Dhingra, Ottaviano and Van Reenen 2016). The trading partners of Britain would suffer loss of trade along with Britain who incurs higher cost of trade if it continues trade with European countries. Hard-Brexit would induce the country carry out international trade under the World Trade Organization regulations (Dorling 2016). This calls for more UK participation in the global trade beyond the only nations listed in EU.

Comparatively, Soft-Brexit makes provision of staying in single market even after UK exiting from EU (Kierzenkowski, Pain, Rusticelli and Zwart 2016). Application of multi sector multicounty general equilibrium model, it has been estimated that the Brexit would cause downfall in the welfare by 2.6% (Anderson and Rogerson 2016). The benefits of the Brexit in form of lower immigration, better regulation and more trade with non-EU countries can actually create lesser impact to offset such loss that in presence of dynamic model shows great loss in the welfare almost by 9.5% incorporating productivity effects. 


The decision of Brexit is one of the most influential and crucial phenomenon in recent time of globalised economy. Globalization binds the economies of nation through activities like market participation trade and business. European Union is epitome of grouping of worlds developed nations that enjoys transactions in single market standardized and driven by its own rule and law. UK has been one of the important member nations that has higher impact in the EU economic conditions as whole. Not only through trade but also through contribution made to EU budget and large UK nationals working in EU offices and institutions. The decision of Brexit hit hard at the heart of EU through all these. On the other hand much debate has arisen out of the impact of Brexit that estimates positive sign for economy of UK. Increased trade with world economy and more GDP growth is up coming to the nation. The general unemployment problem would be taken cared of by the this decision as excessive immigration would be restricted as well as more income would boost consumption and chain wise more production and GDP. 


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