Brexit and Its Impact on UK International Businesses

Running Head: ECONOMIC ASSIGNMENT
Economic Assignment
Name of the Student
Name of the University
Author note

1ECONOMIC ASSIGNMENTReferencesReferences
As the name suggests, Brexit refers to the event of Britain’s from European Union. In a
referendum held in June, 2016, voting arrangement was conducted to decide whether to sustain
UK membership in EU or not. Majority (51.9%) was against continuation of UK membership in
confirming Britain’s exit from EU. UK regions that are voted to exit EU bear a greater economic
consequences than any other regions of Europe (bbc.com 2018). The Brexit not only interrupts
trend in UK’s economic performance but also has consequences for regulation, politics and
cultural environment. The changes brought by Brexit on internal and external environment have
impacted operation of domestic and international businesses.
The uncertainty about UK’s position in the international market changes the outlook for
international businesses. The instability of UK economy has led to a instability is pound value,
trade and regulatory barriers for cross border movement of people, goods or services and a more
complex legal and regulatory structure. Earlier UK businesses would enjoy the benefit of EU
membership in several ways. These benefits now have ceased to flow in UK. There are some
optimistic view of Brexit as well suggesting that legal the short run loss from Britain’s exit from
EU can be overcome by a strong performances of the economy in the long run.
The changes in external environment of UK businesses is critical to discuss. A clear
understanding is needed regarding implication for economic, political, legal and cultural
environment on international businesses. Among many of the factors influencing external
business environment economic factors are the major one. Economic factor affecting business
operation are interest rates, taxes, exchange rates and overall economic growth rate. UK is
recognized as having one of the highest GDP in world (Koch 2016). This provides UK
businesses a greater economic support. The stable economic condition helps to attract foreign
investment in the economy. The economic factors though relate to the economy on a broader

2ECONOMIC ASSIGNMENTReferencesReferences
scale these however have profound implication for internal functioning of each and every
companies.
Brexis has posed a sudden recessionary pressure for UK economy. The growth of UK
economy was contracted to 0.6% at the end of June, 2017. At the immediate next month of
Brexit the economic growth was as low as 0.2% (independent.co.uk 2018).
Figure 1: Actual and forecasted growth rate of UK
(Source: independent.co.uk 2018)
Before Brexit, UK experienced a recorded high employment of 74% and lowest level of
unemployment of 4.9% with a healthy economic growth rate 2.2%. The economic contraction
after Brexit has dragged the value of pound down in relation to trading partners of UK. Pound
recorded a depreciation both against dollar and Euro. The implication of depreciated currency is
on the price of the goods traded. UK now has to a higher price of imported items (reuters.com
2018). This apart from raisin domestic price level has imposed additional cost burden on
businesses using imported inputs or operating outside UK. The international businesses now
have to make a higher payment for factor input paid in terms of their domestic currency. The

3ECONOMIC ASSIGNMENTReferencesReferences
depreciated currency and the resulted high import cost reduces business profitability. The weak
growth rate along with weak currency reduces the business confidence of UK. This reduces the
business investment. The Bank of England has expressed a lower expectation about future
potential business investment.
Figure 2: Movement of currency value after Brexit
(Source:
One primary reason for unwillingness of UK to leave EU is the benefits derived from the
EU single market access. The EU single market access comes with our freedoms namely
movement of goods, services, people and capital. The idea of single market is to promote free
trade throughout by formation of committee called European Economic Community. By this free
trade agreement all the original sixteen members of EU were required to abolish any form of
interventionist policy like that of tariff or import tax (ft.com 2018). Besides, the member
countries also agree to set a common external tariff. Germany, Italy, France and other nation levy
same amount of import tariff for goods imported outside the European Economic Committee.