Brexit Effect on International Business in UK
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Added on 2021-05-30
Brexit Effect on International Business in UK
Added on 2021-05-30
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Running head: BREXIT EFFECT ON INTERNATIONAL BUSINESS IN UKBrexit Effect on International Business in UKName of the Student:Name of the University:Author Note:
1BREXIT EFFECT ON INTERNATIONAL BUSINESS IN UKBrexit or "British exit," is a reference to the decision of the United Kingdom to quitthe European Union on the date of June 23, 2016. This decision resulted in defiedexpectations and completely global markets upside down. Due to a massive impact to theBritish economy, the value of pound fell to its lowest level against the value of dollar in 30years.The issue of Brexit has been in the headlines of all the major international newschannels and this is because this issue has not only had impact upon the economy of theUnited Kingdom but also on the European Union as well. The UK government’s plannedfiscal policy was to consolidate the financial as well as the economic structure of the nationfollowing such a huge departure from the European Union (EU). The decision to withdrawfrom the EU was decided upon by holding a referendum. The essay attempts to understandthe issue of Brexit and the implications it had upon the United Kingdom and its economy.The assignment also attempts to comprehend and analyze the fiscal policies framed by theauthorities in charge of the United Kingdom and to check whether those policies wereeffective in safeguarding the economy of the United Kingdom from the impact of Brexit. Thepaper attempts to analyze the failure of the fiscal policies of the United Kingdom as a tool toguide the economy of the UK from the implications of Brexit, by explaining in detail aboutthe impacts of recession, budget deficit and tax cuts. The assignment also analyzes theBrexit’s advantages and disadvantages in the economy of UK.The negotiation of Brexit has put a normalization effect on fiscal policy. Thegovernment uses fiscal policy in making business decisions, adjusting tax rates andcontrolling a nation’s economy. This economic policy is a key factor through which anation’s budget is controlled and it is responsible in controlling the money supply of a centralbank. The fiscal strategy along with monetary policy control a nation’s economic growth.Specific study of Financial Times Stock Exchange or FTSE 100 (the U.K), it can be stated
2BREXIT EFFECT ON INTERNATIONAL BUSINESS IN UKthat there was a positive and statistically significant response of post fiscal shock (Auerbachand Gorodnichenko 2016). The fiscal policy is classified into two parts- Expansionary fiscalpolicy, which says higher expenditure and lower taxes lead to increase in governmentborrowing. The situation is applied during recession period. Another type of fiscal policy isDeflationary fiscal policy, which is used to control inflation. It states that lower expenditureand higher taxes is an indication of fall in government borrowing. The UK economy hasfaced worst economic trauma during Brexit. Unemployment, larger deficit budget and otherserious economic issues happened in the economic system. The fiscal policy has increasedtax rate and decreased spending cost to solve the inflation problem. It has also helped inreducing deficit budget and as a result, the total economic growth of UK has been improved.The fiscal policy is an attempt to maintain consistent public finances but the politicalinfluence restricted the implementation of fiscal policy to normalize economic cycle.However, there is a huge contribution of automatic fiscal stabilisers in regulating economiccycle by receiving lower tax revenue at the time of recession (Sims 2013).However, there are certain causes that make the fiscal policy ineffective. Theuncertainty of fiscal policy is one of them. Economic recession is responsible for thisuncertainty that obstructs in planning fiscal policy. Economic recession can be defined as thenegative economic growth for successive two quarters of a financial year. Both recession andinflation are serious economic problem. Usually, the fiscal policy increases the tax rate andcut down the spending to control the inflation. However, at the time of recession, thegovernment increases the aggregate demand and as a result, the tax rate is reduced with anincrease in spending. That is, recession works against the policy of fiscal (Hollmayr andMatthes 2015). Thus, it becomes difficult to plan fiscal policy accurately. The recession alsoaffects the fall in GDP indirectly and consequently the level of unemployment rises. Besides,a recession is responsible for increase in budget deficit. Therefore, the total government debt
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