Brexit and Its Relevant Consequences

This paper aims to evaluate the aspects of the pending Brexit from the European Union, on the macroeconomic operations of the United Kingdom. This paper presents an overview of the pre-Brexit situation, mentioning the possible advantages and disadvantages. Consequently, it lists the consequences posed by Britain’s decision of quitting the union and provides graphical evidence to support the same. Following the consequences, the report includes a brief comparison between the No-Deal Brexit and the Norway Model and suggests the plausible model for Britain to continue the quitting movement.

Running head: BREXIT AND ITS RELEVANT CONSEQUENCES
BREXIT AND ITS RELEVANT CONSEQUENCES
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1BREXIT AND ITS RELEVANT CONSEQUENCES
Executive Summary
This paper aims to evaluate the aspects of the pending Brexit from the European Union, on
the macroeconomic operations of the United Kingdom. This paper presents an overview of
the pre-Brexit situation, mentioning the possible advantages and disadvantages.
Consequently, it lists the consequences posed by Britain’s decision of quitting the union and
provides graphical evidence to support the same. Following the consequences, the report
includes a brief comparison between the No-Deal Brexit and the Norway Model and suggests
the plausible model for Britain to continue the quitting movement.

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Table of Contents
Introduction................................................................................................................................3
Pre-Brexit Scenario: Pros and Cons...........................................................................................3
The Consequences of implementing Brexit...............................................................................5
Comparison: No-Deal Brexit or the Norway Model..................................................................7
Conclusion..................................................................................................................................9
References................................................................................................................................10

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Introduction
European Union (EU) is an economic and political union, which includes 28 member
nations. This union is primarily located in Europe and has an estimated population of 510
million. Through the EU's standardized system of laws, it has developed a single market that
is accessible to all the member states (Oliver, 2016). The policies prescribed by the EU aims
to ensure tariff-free movement of goods and services, people and capital within the boundary
of the union. In addition to this, the EU enacts legislation through its common policies on
agriculture, fisheries, trade, and regional development. However, Britain is aiming to exit the
European Union.
Brexit is the moving out of the United Kingdom (UK) from the membership and
trading association of the European Union (EU). Despite the population's support for Brexit,
the result of this movement is pending. There are plenty of debates, both for and against the
Brexit movement. Policymakers and the administration of the UK have proposed two
possible ideas to combat this dilemma. The strategies are No-Deal Brexit and the Norway
Model. No-deal is termed as the "Divorce" procedure, where there is an immediate
withdrawal of Britain from the EU. Contrary to this, the Norway model is a mutual separation
from the EU membership with access to market and free trading opportunities
(bbc.com.news.uk, 2019).
This paper evaluates the pre-Brexit situation and determines the consequences of
Brexit. Moreover, it performs a comparative study between No-Deal Brexit and Norway style
of Brexit. This paper uses graphical representations to determine the consequences and
support the comparative analysis.

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Pre-Brexit Scenario: Pros and Cons
Apart from holding the membership, the United Kingdom is a major trading partner of
the European Union. The single market of the EU grabs about 40 percent of the UK exports.
The EU is a major exporter of goods and services to the market of Britain. This consists of
necessities such as grains, dairy, seafood, livestock, and many others. Other than duty-free
transportation of goods and services, the membership of the EU allows people and capital to
move freely without regulations. UK has about 80 percent access over the services in the EU
(Pettifor, 2017). Tourists, students, and employees are exempted from holding visas to travel
and reside in the area of the EU. This creates employment in the economic area and helps
development in the region. Good growth and high infrastructural development attract
investments in the region. The interest rate in the region is stable that induces saving among
the population and implies higher investment. This has contributed to the growth of
industries and businesses in the region. In addition to tariff-free trading operations, UK has to
follow policies set by the EU to maintain legislation and discipline in the region. Under the
Common Fisheries Policy (CFP), members are prescribed certain quantities above which they
are prohibited from any kind of fishing activity. This policy is formulated to maintain the
stock of fish and the biodiversity of the region (ec.europa.eu, 2016). Whereas, the Common
Agriculture Policy (CAP) aims to protect the farmers from the fluctuating price level. This is
implemented by providing funds for carrying out agricultural practices and subsidies for-
profit security (ec.europa.eu, 2019). The signing of the North Atlantic Treaty Organization
(NATO) has prevented the members from aggressive nationalism. Moreover, it has safeguard
the nation from political conflicts.
Although there are several positive reasons for retaining the membership of the EU,
yet there are disadvantages that induce the UK to initiate Brexit. The agricultural policy and
fisheries policy are binding on all the members of the EU. The developmental policies for

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agriculture grab the majority of the revenues of the EU. In addition to this, the subsidized
prices generate a loss for the economic contributors. This not only affects the profitability
rates of the farmers but also distorts the market situation. This implies the faulty formulation
of policies by the administration. The strict laws and guidelines formulated by the Supreme
Court of the EU restrict the freedom of the member states. Moreover, the EU forces its single
currency Euro over the member nations that creates problems in the path of development.
Above all these issues, the problem of increased immigration acts as a catalyst for the
initiation of Brexit. The excess immigration of people to the cities of the UK has burdened
the country with an increased population. Moreover, this has put pressure on the environment
and job market of the nation. All these acts as igniters for the supporters to induce the Brexit
movement.
The Consequences of implementing Brexit
Benefits and costs are the attached consequences of the membership of the European
Union. Although there are plausible reasons for the formulation of the Brexit movement, yet
after its implementation, it can readily hurt the economic functioning of Great Britain. Britain
largely depends on imports from the European Union. The majority of the food supplies of
the UK comes from the unitary market of the EU (Dhingra et al., 2016). Brexit will restrict
duty-free trade and make imported supplies expensive. This will burden the domestic
individuals of Britain with high prices of foods and commodities. Eventually, the demand
will fall. Apart from imports of goods and services, the majority of the UK's export revenue
comes from the EU. Brexit will reduce the demand for the UK's export in the EU, leading to
a fall in the profitability of the exporting sector. As a result, the implementation of Brexit
will harm the trading activities and cash inflows of the UK (bankofengland.co.uk, 2019). The
diagram mentioned below pictures the dependency of the UK's export and the import demand
on the market of the EU. The chart portrays that the majority of imports in the UK comes

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from the member states of the EU. Moreover, the EU is the principle market that demands the
exports from the UK. Brexit will distort the swift flow of activities between the nations. The
falling demand and revenue of the exporting sector will induce the producers to drop
productivity levels and cut labor demand. This will affect the employment level in the region
and this adverse effect will be transmitted to the growth rate of the country (Chang, 2018).
Figure-2 shows that the majority of the employment of Britain comes from the EU. Thus,
when Brexit comes into force there will be widespread unemployment in the job market of
the UK. Ultimately affecting the growth and development of the nation.
Figure 1: Proportion of UK's import and export from the EU region

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(Source: ecb.europa.eu, 2019)
Figure 2: Dependency of the UK's employment on EU
(Source: independent.co.uk, 2017)
Apart from providing a market for goods and employment to the UK, the EU provides
funds for the development of Britain. Figure-3 explains the proportion of finances and aids
provided by the EU to the UK. The EU provides a huge amount of funds to the agricultural
sector of the country (Feng et al., 2017). That includes support for the farmers as well as for
rural development. Finances are allocated for the regional and social development of the area.
Thus, this can be inferred that if the UK decides to quit the membership of the EU it will lose
all these funds provided by the economic union. However, the only positive impacts will be
on the rate of immigration and the exemption from the strict laws of the EU. Thus, this
implies a loss in the macroeconomic growth of the economy.

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Figure 3: Rate of transfer of funds from the European Union in 2015
(Source: Hobolt, 2016)
Comparison: No-Deal Brexit or the Norway Model
The No-Deal proposal for Brexit is a bitter strategy for the economy. The quitting of
Britain from the membership of the European Union can adversely affect its macroeconomic
variables. Complete wearing out of the UK without any proper documentation implies no
access to the unitary market of EU (bbc.com.news.uk 2019). Moreover, this will abolish the
tariff-free regime of import and exports, and make commodities expensive. Additionally, it
will create a shortage of supply due to trade distortions. Higher prices will induce inflation in
the economy. The expensive imports and the increasing expenditure of the households will
induce them to drop their demand. As a result, productivity and employment will be
adversely affected. In addition to these features, the EU generates huge volumes of
employment to the population of the UK. A No-Deal Brexit will put an end to the complete
access to this job market (Emerson, 2017). This will lower the national income of the country
and affect the aggregate demand. Again, this will adversely affect the productivity levels.
Brexit is known to affect the housing market of Britain. Fluctuations in the construction

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business negatively affect the currency value of the pound sterling. As a result, the
international flow of funds reduces and business growth stagnates. EU is the primary source
of finances for the regional and rural development of the UK. The withdrawal of membership
will reduce these flows of funds and hamper its process of development. The only benefits
will lie in the reduction in migration and exemption from the legislation of the EU
(spectator.co.uk 2018). However, there is an overall loss in the revenue generation of Britain.
Drawing down the attention to the Norway Model this can be viewed that, being a
non-member of the European Union Norway continues to enjoy the tariff-free trade with the
EU. Under the European Free Trade Agreement (EFTA), Norway is a member of the
European Economic Area (EEA) (Fossum, 2016). This allows Norway to enjoy the benefits
of duty-free trade and complete access to the single market. This treaty helps Norway to stand
out from the fishery and agricultural policies of the EU (Feng et al., 2017). Moreover,
Norway does not have to follow the judicial and legislative laws of the Supreme Court of the
EU. This is termed as the Norway Model of Brexit. The Norway style of the agreement will
bestow Britain with complete access over the lucrative single market of the EU. In addition to
this, Britain will be able to trade freely with the EU. Britain will be free from tariffs and
different trade barriers. The currency will maintain its value; interest rates will be attractive
and will attract large FDI inflows. This will maintain the supply of commodities and stabilize
the prices of goods. The productivity levels will be stabilized, the business will flourish and
unemployment will be intact. Moreover, the main reasons for initiating the Brexit movement
is stabilized. The increased immigration will be lowered through the four-freedom agreement
under article 112 (irishtimes.com, 2019). The laws of the Supreme Court of the EU will not
be binding on the functioning of the EU. This will let the UK maintain and formulate its
policies. One of the important points behind Brexit is the Irish border disputes. The Norway
Model can help in solving this dispute to a certain level. Thus, the explanation presents and

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suggests that Norway Model is a better way of exiting the European Union than the No-Deal
way.
Conclusion
Hence to conclude this can be viewed that Brexit can harm the economy in several ways.
European Union is a strong economic union that has great influence over the operations of
the member states. UK is an important part of the EU gets ample benefits from the union. It
derives large volumes of revenue, employment, and necessities from this region. Thus, Brexit
can adversely affect the macroeconomic factors of the United Kingdom. However, certain
factors induce people to support the Brexit movement. Yet there are various negative
consequences of this movement. Policymakers and researchers are of the view that either the
No-Deal or the Norway style of Brexit is perfect for the nation. For the negative
consequences of Brexit, several articles and journals support the Norway model of exiting the
EU and deny the No-Deal. There is certainly evidence for this support. Thus, the report
suggests accepting the Norway Model of quitting the European Union.

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References
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