Implicatons of Brexit for the UK and EU

Introduction

31^st December, 2020 was officially the last day of the transition period that allowed the United Kingdom (UK) to make their exit from the European Union (EU). The end of this transition period which was a rather lengthy procedure was overseen by two Prime Ministers and was also bogged with many extensions and delays, which split the UK (Shannon Schumacher, 2019). The process of making an exit from the EU was not an easy process and was quite intricate.

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The erstwhile Prime Minister of the UK – Theresa May, subsequent to the will of the voters’, processed the notification for withdrawal as under Article 50 to the EU on 29^th March, 2017. An agreement for withdrawal was deliberated with the EU which presented their new terms of association. However, since the Parliament was divided, she failed to acquire an approval (Nigel Walker, 2021). May was succeeded by Boris Johnson who took over from her as the Prime Minister of the UK. The Conservative party of Johnson was successful in subsequently acquiring a majority during the royally mandated election which was held on 12^th December, 2019 (Baker & Uberoi, 2019). This facilitated Johnson to acquire the necessary approval from the Parliament for the withdrawal agreement which was negotiated with the EU. The agreement received the required legislative royal assent on 23^rd January, 2020. It was on this date that the queen agreed to convert this bill into a law (UK Parliament, 2021). Formally, the UK made it exit from the EU on 31^st January, 2020 but they moved into a period of transition which eventually came to an end on 31^st December, 2020. Agreement with regards to the EU-UK Trade and Cooperation was accepted on 24^th December, 2020 and signed six days later (European Council, 2020) i.e, on the 30^th December, 2020. Everything said and done, now that the UK has officially made its exit from the EU, therefore it is necessary to comprehend the insinuations of this exit for the UK as well as the EU.

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Implications of Brexit on the UK and EU

The decision of the UK to exit the EU has for one created a lot of uncertainty with regards to the future of relationships in terms of trade following Brexit. It has been stated by Klaus Schwab (2017) the financial repercussions arising from the UK’s exit vote could already be felt. In addition, there is tremendous scope that such impacts would definitely increase following the implementation of Article 50 from the Lisbon Treaty. The Bank of England has remarked that owing to Brexit, a material slump has been witnessed in the prices of certain European area risky assets, for example, bank equities, where a drop in prices would be aggravated through concerns pertaining to the profitability of certain banks in the Europe region (Bank of England, 2016) and this was even before the leave vote was approved. 

Impact on the UK

Brexit has already made a tremendous impact on the UK. There has been a drastic slowdown in the UK economy and several organizations have shifted their headquarters to the EU. Needless to say it has also impacted jobs and growth.

Growth

The growth of the economy has been severely impacted by Brexit and this is largely attributed to the uncertainty that revolves around the eventual outcome. The economic growth of the UK slowed from 2.4% during 2015 to 1.0% during 2019 owing to uncertainty from Brexit. It has been estimated by the government in the UK that the growth of the UK would be further lowered by 6.7% over the forthcoming 15 years. Though the prevalent terms of free trade were assumed, immigration continued to be restricted (Daniel Harari, 2019).

Figure 1: Long-term GDP Impact from Brexit in the UK

Source: Daniel Harari, (2019)

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Jobs

Young workers in the UK were most hit by Brexit. A shortage of 3 million skilled workers will be experienced by Germany by 2030 (The Local, 2017). However, following Brexit, these jobs might not be readily available to workers from the UK. Further, employers across the UK are finding it challenging to find candidates as EU born workers left the UK, and their numbers dropped by 95% during 2017. This has made a massive impact on low-skilled and medium-skilled occupations largely.

Impact on the EU

Brexit is largely deemed as a vote that was not in favour of globalization and as an outcome it has weakened the forces across the EU that were in favour of incorporation. Members from the right-wing anti-immigration parties were especially anti-EU within Germany and France. If they managed to gain much ground, they would be in a position to compel an anti-EU vote. In case either France or Germany makes an exit, the EU stands to lose its most robust economies and it would lead to a dissolution of the EU as such. At the same time, a large segment of citizens from the EU continue to extend their full support to the union. The Pew Research Center conducted an extensive research throughout ten European nations has revealed that almost 75% of the respondents who participated in the research were of the belief that peace was promoted by the EU, while 55% opined that the EU supported prosperity. Also, a third of the respondents perceived a diminishing role of the UK (Wike et al., 2019).

Conclusion

In short, it has been observed that following the referendum of the UK to exit from the EU, the standard measures are indicative of a substantial growth in the level of uncertainty. Furthermore, it has been noted that there is high scope that Brexit would impat not just the UK but also the economy in other parts of the EU via diverse channels of transmission, for example; trade, immigration, uncertainty and investment. Moreover, it is clear that in the near future, the major brunt of Brexit would prove to be increased uncertainty in terms of economic as well as political aspects. Such issues have the potential to reduce the pace of investment growth and private consumption along with foreign trade, essentially within the UK; though the impact of Brexit would also be felt majorly within the EU too.

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References

1. Baker, C., & Uberoi, E. (2019). General Election 2019: The results. https://commonslibrary.parliament.uk/general-election-2019-the-results-so-far/
2. Bank of England. (2016). Inflation Report. https://www.bankofengland.co.uk/-/media/boe/files/inflation-report/2016/august-2016.pdf
3. Daniel Harari. (2019). Brexit deal: Potential economic impact. https://commonslibrary.parliament.uk/brexit-deal-potential-economic-impact/
4. European Council. (2020). EU-UK Trade and Cooperation Agreement: Council adopts decision on the signing. https://www.consilium.europa.eu/en/press/press-releases/2020/12/29/eu-uk-trade-and-cooperation-agreement-council-adopts-decision-on-the-signing/#
5. Klaus Schwab. (2017). The Global Competitiveness Report 2016–2017. http://www3.weforum.org/docs/GCR2016-2017/05FullReport/TheGlobalCompetitivenessReport2016-2017_FINAL.pdf
6. Nigel Walker. (2021). Brexit timeline: events leading to the UK’s exit from the European Union. https://commonslibrary.parliament.uk/research-briefings/cbp-7960/
7. Shannon Schumacher. (2019). Brexit divides the UK, but partisanship and ideology are still key factors. https://www.pewresearch.org/fact-tank/2019/10/28/brexit-divides-the-uk-but-partisanship-and-ideology-are-still-key-factors/
8. The Local. (2017). Germany could lack 3 million skilled workers by 2030, study finds. https://www.thelocal.de/20170830/germany-could-lack-33-million-skilled-workers-by-2040-study/
9. UK Parliament. (2021). Royal Assent. https://www.parliament.uk/about/how/laws/passage-bill/lords/lrds-royal-assent/
10. Wike, Richard, Fetterolf, J., & Fagan,  and M. (2019). Europeans Credit EU With Promoting Peace and Prosperity, but Say Brussels Is Out of Touch With Its Citizens. https://www.pewresearch.org/global/2019/03/19/europeans-credit-eu-with-promoting-peace-and-prosperity-but-say-brussels-is-out-of-touch-with-its-citizens/