The Economic Impact of Brexit

January 8, 2017

 

 

1.2 Context and Significance of Study

Although the impact of Brexit on the British economy is uncertain, we doubt that Britain’s long-term economic outlook hinges on it. Things have changed a lot since 1973, when joining the European Economic Community was a big deal for the United Kingdom. There are arguably much more important issues now, such as whether productivity will recover. The shortfall in British productivity relative to its pre-crisis trend is still over 10% (Dhingra etal, 2015), so regaining that lost ground would offset even the most negative of estimates of Brexit on the economy. Leaving the European Union is a substantial step for any member state to take. The decision is in many ways a social, cultural and political one, but it is also one which carries economic implications. The United Kingdom’s potential decision to leave the European Union, or ‘Brexit’, has consumed much debate. The magnitude of the economic costs and benefits of Brexit cannot be known with certainty before the event. Some studies show negative impacts of varying degrees. The Centre for Economic Performance at the London School of Economics estimates that the United Kingdom leaving the European Union and joining the European Free Trade Association will reduce British GDP by at least 2.2% in its optimistic scenario, and between 6.3% and 9.5% in its pessimistic one (Confederation of British Industry, 2013) The Confederation of British Industry estimates that the net benefit to the United Kingdom stemming from European Union membership is somewhere in the region of 4 to 5% of Britain’s GDP, or between £62bn and £78bn per year (Dhingra etal, 2015), The National Institute of Economic and Social Research estimated that withdrawal from the European Union would permanently lower the British economy’s level of output by 2.25% below what it would otherwise have been (Pain & Garry, 2004). Other studies paint a more mixed picture. Open Europe estimates that, if the United Kingdom embraced protectionism in the wake of a Brexit, this could cost 2.2% of GDP by 2030. By contrast, if it followed a path of economic openness, Britain could outperform the European Union. In that case, Brexit could add at least 1.6% to national income by 2030 (Booth etal, 2015)

The research is important because it assesses the potential impact of Brexit on key issues that would be affected by Britain’s overall economy including the labour market, trade and the manufacturing industry, financial services and the City of London, regulation, innovation and productivity, foreign investment, public sector finances and consumption and the property market.

1.3 Research Question, Aim and Objectives

The chances are high that a favourable trade agreement could be reached after Brexit, as there are advantages for both sides in continuing a close commercial arrangement. Not only is the European Union important to the United Kingdom’s trade position, British markets are important to the rest of the European Union. The aim of the research is to study the impact of Brexit on UK economy.  Thus, the main research question is:

  1. Is withdrawal from the EU justified from a purely economic perspective?

  2. Taking the demands for economic reform as UK preferences, can the UK achieve these by standing outside the EU?

To answer the above research, question the following objectives are set:

  1. To investigate the key areas of integration with the EU economy, defined as the trade relationship, the financial sector, and EU migration.

  2. To analyse the importance of EU membership in these areas identified above and how this will change after Brexit.

  3. To evaluate economic consequences of leaving the EU.

 

1.4 Research Methodology and Method

With regards to methods, researcher have chosen to rely upon estimates from professionals in the field, rather than collecting own data through surveys or interviews. This means having less control over the validity of the data and will not be able to present a calculation that sets a number to the costs of Brexit. On the other hand, the approach chosen allows researcher to portray a broader perspective and to bring up different aspects of the consequences. Researcher can depict the many uncertainties involved and thereby emphasise the impossibility of quantifying the economic costs with a number.

The sampling framework will remain within the scope of past and very current research on this topic. More than One case study will be employed to support the overall analysis. The city of London and how its financial strength will be impacted by UK leaving the EU will be analysed to draw conclusions for this research. Several journal articles and books will be reviewed and used to support the aims of the research.

 

1.5 Limitation of the research

This research explores the economic consequences that will arise, if UK finally leaves the EU. At current, the UK government is pushing for a reform in the EU, hence the UK may face improved conditions in their EU membership after the referendum. However, developing assumptions about the outcome of reform negotiations is beyond the scope of this research, and it is not the primary aim of this dissertation. Thus, the research will focus on comparing the current conditions to the ones the UK may face as a non-EU member. Furthermore, the research cannot cover all areas of the economy that will be affected by Brexit, and have instead focussed on three main issues. Regulation is a much-debated topic with regards to Brexit, though there has been no convincing evidence to explain the economic consequences of EU regulation. Hence, researcher have chosen to focus on areas that arguably will have large economic impacts on the UK, and for where there are developed theories to predict the outcomes.

1.5 Structure of the dissertation

The following study has been divided into five chapters each dealing with a specific subject related to the overall topic.

  1. Chapter two will provide literature review on the subject under discussion to get more insights about the previous work done on the same topic by professionals in the field.  

  2. Chapter three, provides the methodology followed, the data collection techniques, and the analysis of the secondary data information collected to get to the results.

  3. Chapter four provides a case study using the city of London and how Brexit can potentially impact its financial strength

  4. In Chapter five, the analysis of the data collected along case studies about Brexit and economic impact

  5. In Chapter six, the conclusion of the research with the final recommendations will be provided so as to improve the knowledge on the subject matter.

     

     

     

     

     

     

     

     

     

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