Potential Economic Consequences of Brexit on British Economy, with a special focus on the Dairy Industry

Running head: ECONOMICS
Potential Economic Consequences of Brexit on British Economy, with a special focus on the
Dairy Industry
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1ECONOMICS
Introduction
Brexit is the abbreviation for Britain’s exit from the European Union (EU). On June 23,
2016, around 30 million British citizens voted in the referendum that whether Britain should
leave the EU or not. 51.9% voted for it while 48.1% voted against it (Hobolt 2016). Hence, it
was decided that Britain would end its 43 years relationship with the EU based on some terms
and conditions. David Cameron stepped down and Theresa May became the new Prime Minister,
who triggered Article 50 of the Lisbon Treaty on 29th March, 2017 to start the exit process
formally. Hence, complete Brexit will happen on 29th March, 2019. The forms of Brexit were
termed as hard and soft Brexit. Hard Brexit refers to the terms of not only leaving the EU, but
also the single market and the Customs Union of EU (Goodwin and Heath 2016). This would
give Britain a full control on its borders, making of new trade deals and applying the legislations
within the territories. On the other hand, soft Brexit will enable Britain to leave the union but
have an access to the single market. It is a matter of debate that whether the UK would adopt the
soft Brexit or hard. Hard Brexit will have more tough impact on all types of industries as it
would lose the access to the free market of the EU (Lawless and Morgenroth 2016). This essay
will focus on the consequences of hard Brexit on the British economy in general and emphasize
on the dairy industries, as it contains many international companies. Appropriate economic
theories and models will be used to illustrate the discussion.
Discussion
The referendum on Brexit and its outcome was a revolutionary event in the history of the
Great Britain and the European Union. Although the final impact on the UK economy is yet to be
affected, but in the past two years of ongoing Brexit process, there have been mixed impact on

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the economy. However, Giles (2018) writes on the two year anniversary of the referendum that
the decision of Brexit has negative impacts on the economy as the pound became weaker and
that squeezed the household incomes. The level of investment fell significantly due to
uncertainty in the business world. It was found that in the first quarter of 2018, the economy was
1.2% smaller than what it would have been without the Brexit vote. This indicates a hit of £24
billion to the economy, which amounts to £450 million a week or £870 per household per year.
And this value is increasing as the final exit date is approaching, as in December 2017, the
amount was £350 million a week (Giles 2018).
Figure 1: Growth of the UK and the EU before and after referendum
(Source: Giles 2018)
The specific impacts on the economy had hit the currency, inflation, business investment
and the stock market, employment and level of skilled workers and economic growth the most.
The first shock was on the currency. As soon as the result of the referendum was announced, the

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pound fell 10%, quite dramatically against dollar to a 31 year low, and hit $1.33 (Morrison
2018). The assumption of a hard Brexit did not get welcome from the economy and the currency
never improved. In January 2017, the currency was around $1.21 after the hard Brexit was
announced (Chu 2018). However, the currency improved slightly in the next few months due to
weakness of the dollar and not for the strength of the pound.
According to the OECD data, the UK has always has higher inflation than the EU region
since 2011. This was accompanied by higher growth in the UK. However, after the Brexit
referendum, the inflation remained higher but the growth in the economy was lower. Hence, the
impact of inflation was hard (Papadia 2018).
Figure 2: Consumer price inflation in the UK and the euro area. Q1 2011 – Q1 2018
(Source: Papadia 2018).