On 23rd June 2016, Britain voted out of the European Union through a referendum. The decision by the Britons marked a momentous occasion in history as different consequences were seen. These implications were both political and economic. For instance, the freedom of labor was curtailed--immigration, trade between Britain and the entire European bloc was reduced, and the sharp decline of the pound followed. This paper strives to explain the economic implication of Brexit both in Britain, and the world.
Since the inclusion of most European countries into EU, Britain has experienced immigration from the different member countries. The figure had risen to 100,000 per annum, and such immigrants contributed to the Britain's workforce by 0.5% in 2015("The Economic Impact Of ‘Brexit’", 2016). This allowed the economy to grow without increasing the rate of inflation and cost of labor while keeping interest rates lower for long periods. However, for Britain to maintain such labor within its territory, it will have to develop policies which will hinder low-skilled laborers from immigrating while supporting the immigration of the skilled labor personnel. Nevertheless, such a move would affect sectors such as agriculture which require low skilled labor.
Manufacturing and trade are bound to be affected. According to research, almost half of the British goods are exported within the European Union. Further, a closer look at all trade links between Britain and European countries, 63% of Britain exports are within the European Union("The Economic Impact Of ‘Brexit’", 2016). Free trade agreement between Britain and EU member countries has made the business easier and profitable for Britain. After Brexit, the only survival involves opening talks with other countries within and outside Europe to make trade agreements. Currently, Iceland, Ghana, India, Mexico, New Zealand, and Australia have expressed their interests in signing trade agreements with Britain.
According to the Markit's PMI report, the Economy of Britain is shrinking at a rate of 0.4% which is similar to what was experienced in 2009 (Belam, 2016). Services and manufacturing sectors have experienced the largest hit, and the worst is yet to come since it is barely two months after the exit.
Foreign investment after Brexit was anticipated to hit a wall. However, that is unlikely to happen anytime soon since most foreign investors will only invest in Britain to have their foot in the British market. Therefore, there is no way the European Union can limit it.
The Public sector is likely to benefit from the Brexit since the British government will save up to 10 Billion pounds from the usual contributions made to the European Union ("The Economic Impact Of ‘Brexit’", 2016). However, the decrease in the immigrants' labor might slightly offset these savings. Furthermore, the government might be forced to make an absolute contribution to maintaining the single market access agreement. Also, in attempts to keep trade, the country will be compelled to lower trade tariffs such that most countries within and outside Europe will be enticed to trade with Britain.
The retail sector is believed to experience a go slow in the consumption of goods and services. According to a retail data company, Springboard, the number of consumers visiting British shops fell by 3.4%, 10days after the referendum. The initial shock experienced by people after Brexit put them off from shopping ("Here's How The Brexit Referendum Is Affecting The U.K. Economy So Far", 2016).
Real Estate developers have begun preventing investors from taking money away from commercial property funds while others decided to lower the value of such funds. Nevertheless, the Bank of England claimed that the failing of commercial real estate business could be a blessing in disguise. That is, most businesses would now take more loans from banks as they would now focus on using their real estate property as security for loans. ("Here's How the Brexit Referendum Is Affecting the U.K. Economy So Far", 2016).
In conclusion, the Brexit is likely to affect the Britain's economy and economic activities on a large scale. However, if it focuses on maintaining good trade relations with the European countries, it could offset some of the anticipated losses.
References
Belam, M. (2016). One month on, what has been the impact of the Brexit vote so far?. the Guardian. Retrieved 31 August 2016, from http://www.theguardian.com/politics/2016/jul/22/one-month-on-what-is-the-impact-of-the-brexit-vote-so-far
. Here's How the Brexit Referendum Is Affecting the U.K. Economy So Far. (2016). Fortune.com. Retrieved 31 August 2016, from http://fortune.com/2016/07/11/brexit-referendum-uk-economy/
The economic impact of ‘Brexit’. (2016). Woodford Funds. Retrieved 31 August 2016, from https://woodfordfunds.com/economic-impact-brexit-report/
