Brexit and the UK’s Economic future

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A-level Economics By: Please log in to see tutor details
Subject: Economics » A-level Economics
Last updated: 20/09/2016
Tags: brexit, eu, single market

Much has been made in the popular press about how, since the EU referendum result of 23rd June, the UK economy has not entered recession, and that for now at least, the four horsemen of the economic apocalypse are nowhere to be seen. In truth, the doom-monger forecasts provided by the less responsible members of the remain campaign were in the short-term always going to be inaccurate and likely undermined the credibility of that campaign. Nevertheless, the magnitude of the challenge ahead is daunting and as the post-Brexit environment begins to reveal itself, some of the direr forecasts may yet bear some poisonous fruit for the UK economy.

A common misconception is that we in the UK can have access to the single market, yet have the level of immigration controls that some desire. The reality is somewhat different as EU leaders have made it abundantly clear that the two are not separable. Hence, if the UK is to have the controls that some desire, we will not have access to the single market. What does this actually mean? Well, our exports to EU countries (over 40% of our total exports) will have a tariff, or tax, placed on them, making our goods less competitive and threatening jobs. Much is said about the UK being free to independently negotiate trade deals. Yet any positive outcomes from these will be some years away due to the complexity of negotiations and the fact that we are a low priority for other countries in such negotiations given the ongoing trade talks between the EU and both the North American and Pacific blocs. Also, our reduced negotiating power as an individual nation state, as opposed to being a part of the largest single market in the world, means the terms of such deals are likely to be inferior in comparison to what we might have got by choosing to stay in the EU.

Brexit, if it does actually occur (at present we are still EU members) means we will have no influence on the conditions of the single market e.g. standards of goods & service specifications. It is likely that major manufacturers here, without the ability to lobby on the rules of the single market that apply to their goods and services, will take a dim view of their future in the UK and the risk of many firms uprooting to mainland Europe, taking investment and jobs with them, is very real. There is a particularly high risk of London losing its status as a major financial capital, something that affects all of us given the huge dependence of the UK economy on financial services for GDP and tax revenues. In the meantime, businesses, faced with years of uncertainty as to how the post-Brexit environment will play out, delay investment decisions. This doesn’t have an immediate impact, but over the course of the next few years, we can expect to see significant reductions in economic growth, a stalling of the recovery and a real risk of a Brexit-induced recession.

Furthermore, even if the UK were successful in gaining some level of immigration controls, the supposed benefits of this would be minimal. The truth is that the UK relies on inward migration to staff essential public services (NHS users will know that) and a range of other job roles, with agriculture and construction especially dependent on EU migration and the free movement of labour. Hence, even with immigration controls, not much would actually change in terms of migration. If it were to be restricted, then expect the collapse of those sectors of our economy due to inability to recruit staff.

The extent to which the UK is prepared to compromise on the terms of Brexit is essential to our future. Without compromise on immigration, or rather acceptance of the status quo, our future membership of the single market is in grave peril and the promises made by many in the leave campaign are increasingly likely to look thin as the reality of a Brexit-investment recession hits home. One might hope that reality may yet prevail, with the UK effectively remaining as a de-facto member of the EU, accepting all of its terms and conditions a la the Norway model, but without a seat at the decision-making table. This is likely our best economic option now, other than a full-reversal of the decision made on the 23rd June 2016.

Richard Parker A-level Economics Tutor (Stockport)

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