Brexit and Macroeconomic Policy: Impacts on UK Economy and Standard of Living

This report comprehensively illustrates the Brexit and its impacts on the UK economy and standard of living. It covers the methodology of Brexit, background of the UK economy before the referendum, and major opinions and predictions around Brexit during the key stages of the process. The report analyzes the impacts of Brexit on macroeconomic policy, including fiscal and monetary policies, and covers key terms and concepts such as GDP, inflation, and investment. The report also presents arguments for and against Brexit, and analyzes emergent pro- and anti-sentiments during Brexit negotiation and after the referendum.

PRINCIPLES AND
APPLICATIONS OF
MACROECONOMICS

Table of Contents
Introduction......................................................................................................................................3
Main Body.......................................................................................................................................4
Description of methodology........................................................................................................4
Background of UK economy before Brexit referendum.............................................................6
Presenting major opinions and prediction around BREXIT during the key stages of process........7
CONCLUSION................................................................................................................................9
References......................................................................................................................................11

Introduction
The report of principles and application of macroeconomics will comprehensively illustrate
the Brexit. The united kingdom government's move to take an exit from the European union is
popularly known as the Brexit. European union is an economic and political union of the 27
member states which are located primarily in the Europe. European union was formed in 1993
for the purpose of having an aim within its boarder to offer security, freedom, justice without the
internal boarders. Also, to combat and prevent the crime and take care of the immigration. On
31sat January 2020 Britain took an exit from the EU and it was termed as the Brexit. United
kingdom joined European union for the trade restriction removal in the territory to ease the
movement of goods, also to have friendly and dominate relationship in the Europe. But it
rejected to use the common currency which was euro and continued to use the pound as the
currency of trade. There were factors which led to the BREXIT such as immigration,
sovereignty, trade polkicies, anti establishment policies, the economy etc. were the factors which
highly influenced this move. It was the outcome of the non binding legal referendum which led
to the 51.8% votes were actually supported the movement of leaving the European union.
The Brexit has been come out as the most significant move till date that UK government has
taken. As it has highly impacted the economy so far in both positive and negative ways. The
impacts of Brexit lead to the declination in the trade between the EU and the UK because of non-
tariff and high tariff barriers, as a result, UK won't be integrating with the EU any more in the
future and won't be able to derive benefits in the near future. Reduced trade will also lower the
productivity of the country. The report will further cover the deep issues of the methodology of
the Brexit which has impacted the macroeconomic factors such as fiscal, monetary policies. The
arguments in favour of the Brexit have been elaborated. Report will also include an overall
background of the united kingdom economy in the context of the Brexit. At last a review of the
major predictions and opinions concerned with the Brexit as a significant move. The pre and post
Brexit era has been illustrated and the pro and anti sentiments of the referendum has been
established.

Main Body
Description of methodology
Identification of key terms & concepts with their concrete examples
Here the macroeconomic policy analysis will be done along with concrete examples by including
the concepts and key terms such as macroeconomic policy, monetary policy, policy objectives,
fiscal policy and economic welfare.
Macroeconomic policy refers to the study concerning with the operation of the entire
economy (Odell, 2018). The basic goal of framing macroeconomic policy includes the provision
of stable economic environment which is advantageous for fostering sustainable & strong growth
of economy and in turn leads to the creation of jobs, improved standard of living and maximized
wealth of the citizens. Monetary policy & fiscal policy is considered as the key pillars of
macroeconomic policy. The macroeconomic policy usually revolves around five goals that is,
low inflation, fair distribution of income, non-inflationary growth, equilibrium in BOP and Full
employment or low unemployment within the economy. The example of macroeconomic policy
can be quoted as government cutting the rate of taxes applicable on individual income. This
could be done for raising aggregate demand in an attempt to enhance growth of an economy &
thus the employment resulting lowered tax rates.
Fiscal policy includes the policy pertaining to the income & expenditure of government.
The policy revolves around the composition & level of government spending, type & level of
taxes the government has levied and the form & level of borrowings does the government has
made. There is a direct influence of government capital & recurrent expenditure over the
economic activity of the nation along with the indirect influence of taxes, spending, private
consumption, net exports and investment (Barreiro-Gen, 2020). Accordingly, in order to
influence the economy, government adjusts its level of spending & tax rates. The fiscal policies
are also of three types that is, expansionary, neutral and contractionary which are adopted giving
the situation within the economy. For instance, government may resort to subsidising several
items through enhancing their spending. By doing so, government is able to enhance the
aggregate demand within the economy which in turn contributes towards the budget deficits as
well as drawing down of budget surpluses.
Monetary policy is adopted by nation’s authority responsible for controlling the monetary
aspects of the nation. With the help of monetary policy, the monetary authority attempts to

control the availability of quantity of money as well as the channel through which the money
supply is taking place. Usually, the central banks of the nation undertake to frame monetary
policy for the nation while managing money supply with the motive of influencing
macroeconomic factors such as consumption rate, inflation rate, overall liquidity and economic
growth of the nation (Evans and McGough, 2020). For instance, to enhance the aggregate
demand in the economy, policy maker attempts to lower down the interest rates leading to
reduced borrowing cost and enhanced purchasing power of the citizen.
Policy objective can be defined as the desired outcome that the policy maker attempts to
achieve by choosing specific target. For instance, a central bank is aiming to achieve stability in
prices by reduction in inflation to 2%. Here the aim to attain stable prices is the objective of the
central bank’s policy while 2% is target for inflation which would facilitate attainment of the
policy objective.
Economic welfare is concerned with the study of how goods & resources allocated within
the economy would affect the social welfare of its citizen. economic welfare has direct
relationship with the study of income distribution & economic efficiency along with the
determination of how these two factors affect the well-being of economy’s citizens. For instance,
policy maker attempting to enhance the standard of living of the people through providing better
health care and environmental policies meant for reducing pollution.
Analysis of consequences of BREXIT on the UK economy & standard of living
With the announcement of Brexit referendum, its consequences are realized on several
macroeconomic variables which would be discussed in the following section of this essay.
National income or GDP refers to the final value of goods & services that is being
produced in a nation during a particular financial year (Mankiw, 2020). In other words, GDP is
the result nation’s economic activities during a year which has been valued in terms of money.
The Brexit announcement has led to the loss of UK’s GDP between 2% to 6% resulting from the
uncertainty caused by Brexit which has affected the businesses in UK.
Cost of living refers to the cost required to be incurred for maintaining a certain living
standard. With Brexit, crisis within Britain was seen pertaining cost of living which has got
worsen leading to downgraded growth potential of UK.
Economic growth has significant link with nation’s productivity where the production of
goods & services increased as a result of increase in labour force, capital goods, human capital

and technology. Brexit has affected UK’s economic growth negatively because of economic cost
of referendum was found to be 2% of GDP. Also, it has been identified that Brexit has resulted in
reduction in British’s income between 0.6 to 1.3%.
Investment refers to the purchase of capital goods which are not supposed to be
consumed today but are meant for generating wealth in the future (Sun, 2018). With the Brexit,
there were negative impact seen on inward FDI of UK by 22%. This loss of investment has led to
damaged productivity and in turn lower the real income of UK by 3.4%.
Inflation refers to the rise in overall prices of goods & services within the economy
leading to increased cost of living. Brexit has resulted in tariff and non-tariff barriers leading to
poor purchasing power and thus inflation has occurred.
Unemployment level refers to the proportion of people employed out of the total number
of people forming part of the labour force of the economy. Wages levels are determined through
dividing low pay & high pay.
Population refers to the number of people residing within the geographical boundary of
the nation during a year. Migration refers to the movement of people from one nation to another
to get benefitted from better economic opportunities available in receiving country.
Background of UK economy before Brexit referendum
Prior to Brexit, UK was also a member state of European Union and also of its predecessor
European Economic Community from 1973 till 2020. In 2018, UK has reported fifth highest
nominal GDP across the globe while the same being second largest in the EU. The UK economy
was continuously experiencing a rise in its GDP from 2014 till 2020 (Van Raan, 2019). Further,
in 2020 before the announcement of Brexit, the trade of UK with European Union’s 27 member
states accounted for more than 49% in terms of overall exports the country was generating while
the imports that UK is doing from the 27 member states of EU was accounted for 52%. The
service sector of UK was also dominating by contributing more than 81% of the country’s GDP.
Furthermore, specifically the financial service industry of UK was of great importance for the
entire globe because London was the second largest financial centre across the globe. UK
economy was having third last position in OECD countries in terms of its expenditures on
education as well as its affordability & accessibility of civil justice. Also, among G7 countries,
UK is considered to have fastest growing economy.

Presenting major opinions and prediction around BREXIT during the key
stages of process
Argument for and against Brexit before and during referendum:
EU referendum which is commonly known as Brexit referendum that took place on 23rd June,
2016. Basically, Brexit was the withdrawal of United Kingdom from the European Union. UK is
only sovereign country which has left the EU. Before and during this referendum various
argument have been made in the favour as well as against the Brexit. The first argument in
against the Brexit in response to democracy is that who will going to hold the power after the
separation of UK from EU. In against Brexit, politician said that around 80 percentage of UK
laws, rule as well as regulations are made in Brussel and whether UK has the ability to pass their
own laws after the big Brexit decision (Breinlich and et.al., 2022). It is because the power of
European Court of justice to overrule UK judges is quite high.
While on the other hand, it is argued in the favour of the Brexit referendum that this statistic of
80 percentages is basically rubbish. The actual data is only 10 to 15 percentage and UK has the
power and capability to frame its own rules and regulations.
During referendum, majority of UK citizen are in against of the Brexit because they think it
becoming costlier for the country to separate from EU. David Cameron says that the shock of
Brexit leads to the high job losses, mortgage rise, pressure on the pound which ultimately
downturn for UK country (Simionescu, Bilan and Gędek, 2019). Not only that, many businesses
of UK are also in against of the Brexit before and during referendum because of the fear of the
cost of trade tariffs as well as loss of labour movement from one place to another.
However, on the other hand, there are also some citizen of UK that favour the decision of UK to
exist EU. It is because this help the country to get their freedom which was basically their
ultimate goal. At the initial point of Brexit, the GDP and inflation rate of UK has increases. It is
because businesses are not getting cheap labour which leads to increase in selling price of
products. Due to high inflation rate, the overall economic growth of UK is highly affected.
Emergent pro- and anti- sentiments during Brexit negotiation and after the referendum:
With 51.9% of the majority, the British people have decided to exit the EU. Not only that
after Brexit British Prime Minister David Cameron have resigned and new general election was
held in the year 2017. It is because David was in against of the Brexit as for him the separation

of UK from EU will create various challenge and issue for the country. During the Brexit
negotiation, many people think that Brexit is not good for UK as this will highly impact the
political as well as economical condition.
The transition period of Brexit referendum come to end on 31st December 2020. TCA allows the
movement of goods (not services) across each other market on tariff free and quota free even
after Brexit. As per the report of December 2017 financial time analysis, the impact of Brexit
over the economy is such that the national British income has reduced by 0.6% and 1.3%
(Andreouli, Greenland and Figgou, 2020). But after the referendum, UK get the control over
their democracy, boarders, waters as well as control on their money. The main reason behind the
Brexit is euro because UK argued to not to join the common currency policy.
The overall impact of Brexit on the UK economy and people living standards is negative but
uncertain during the Brexit negotiation. The people of UK are facing the issue of unemployment
because they now unable to move freely from one to other market for the purpose of job. The
living standard of UK people have changes in term of purchasing of goods and service. It is
because people are getting the same products at high cost which they get in low before Brexit.
However, it is also analysed that after Brexit, the economy of UK has grown with the increase of
3.9% GDP of UK in the third quarter of 2021 (Bellamy, 2019).
On the other hand, there was also various benefits that UK economy and people have gained
after these Brexit such as freedom to live as per own rules, levelling up across the country,
freedom to regulate in a more proportionate and agile way. This has benefited the company of
UK to protect their share from the foreign business. It is because being a part of EU before
Brexit, many foreign businesses can easily enter the country to start their own operation the
impact of which local business unable to protect their share.
New arguments in favour and against BREXIT during the transition period:
During the transition period, UK continue as a subject to EU rule where country need to follow
the rules and regulations set by EU until 31st December 2020. During the trasition, the new
argument in the favour of Brexit is that people who are previously wants to stop it now working
the favour of it. It means majority of people of UK are supporting Brexit as it helps them in
gaining the ultimate goal of Brexit i.e., freedom to use own currency.

However, on the other hand, many people have argued during the transition cost that the
whole process of separating UK from EU is becoming costlier for the country. The impact of
which the overall GDP of country is has reduced. Not only that, the new argument in against
Brexit is that if British will leave EU, then this will lead to loss of massive among of goodwill
from people elsewhere in Europe (Saunders, 2020). However, the standard of living of UK
people are improving day by day during the whole transition period. Thus, the overall impact of
Brexit to UK was uncertain for UK during the transition period.
Current situation in the dawn of Brexit era
Now, UK is no more required to contribute excessive amount towards the EU budget and this
amount has been invested towards the improvement of inhabitant’s living standard (Brown and
Narasimhan, 2019). Immigration restriction has facilitated establishment of businesses in UK
leading to greater employment opportunities and better standard of living. No membership fee is
required to be paid to EU which the UK has allocated towards education, health care, etc.
resulting in better standard of living for the citizens.
CONCLUSION
After summing up the above information, it has been concluded that the impact of Brexit on
UK economy and living standard of people was negative but uncertain during the negotiation and
transition period. But it is also analysed that after Brexit, people have ultimately gain the
freedom for which the Brexit was introduce in the year 2016. In this report, it has also been
evaluated that Brexit has negatively affected the GDP, inflation, investment, cost of living and
many other factors of macroeconomics. Also UK is having much better position in G& countries
and EU nations prior to the announcement of Brexit but its ranking is not good among OECD
countries. Further, Brexit has affected standard of living of UK citizens both negatively and
positively because of the withdrawal of EU agreement. accordingly, the following suggestions
could be made in terms of how UK can avail positive outcome out of Brexit.
 UK government should go for entering in a new trade deal with EU to maintain its
relationship in the future (Saes and Romeiro, 2019).
 For the maintenance of employment opportunities, the government of UK is
suggested to adopted lenient immigration policies in order to minimize the
immigrants both from and to UK. This would facilitate the nation in overcoming the
challenge pertaining to shortage of labour who are considered as highly skilled.

 Further, there is a need to adopt independent foreign policy which is supposed to be
focusing less on domestic issues while emphasizing more on issues related to the
maintenance of relations with other nations of the world.

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