Uncertainty from Brexit and likely costs to trade

This report provides a critical analysis of the problem faced by the UK government in relation to Brexit and its impact on the UK economy. It discusses the threats posed by Brexit and the potential resolution of these issues.

Business Economics

EXECUTIVE SUMMARY
This report is on the topic “Uncertainty from Brexit and likely costs to trade” which is
based on the UK economy. This report provides a critical analysis over the problem being faced
by UK government in respect to the Brexit. It states about the threats which is being posed by
Brexit and how this has helped in resolving few issues.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Analysing the problem with the economic methodology............................................................4
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Currently the situation of the nations across the world is completely affected. There are
various causes for this and in this report, UK economy is taken into account along with the
problem it is being facing which will be further analysed with the help of the economic theories
and the models pertaining to its impact over the UK economy. Currently, the major issue or the
challenge that the UK economy is facing is the uncertainty created because of Brexit and the
likely cost to trading.
MAIN BODY
Analysing the problem with the economic methodology
The UK has formally left the EU and has lost its participation in the EU's political and
legal processes. But the laws of EU will continue to apply to the UK till the transition period and
allows the UK and EU to further negotiate the dealings. There is a lot of uncertainty prevailing in
respect to the impact Brexit deal will have over the growth and development of the UK economy
(Dhingra and Sampson, 2016). The actual impact of it is still unclear but the probable result of it
can be understood through the way the negotiation between the UK and EU is being carried out
and the outcome of it on the collaboration with the other developing nations. However, as of
now, there is only speculation in regard to the threats and opportunities which will be posed by
Brexit.
The Brexit will be having a multidimensional impact over the economic and the
economic and the financial factors such as the economic growth. International exchange,
monetary aid etc.
Direct Impact
The Brexit will vastly negatively influence the economic dynamics of the developing
nations which results into keeping a close relationship within the United Kingdom. Countries
like Nigeria, South Africa and many other common wealth nations which might have an impact
over the potential decline in the exports, economic growth and development, FDI and other
remittances in regard to these countries (Zaidi and et.al., 2017). UK basically involves 0.7% of
the GDP in regard to its international aid. In order to stimulate the economic stability, the public
authorities might look for substantial retrenchment in regard to the aid spending for supporting
its welfare programs which might result into greater economic benefits. But even if the UK
authority makes its contribution to be same at 0.7% the outcome of it leading to decline in the

GDP causing decrease in the aid budget. Along with this, EU has signed an EBA agreement and
EPAs in which the underdeveloped and poor nations would receive duty-free quota free access to
the UK consumers. But post Brexit, this will come to an end and will lose of these facilities. But
this can be even avoided if the UK formulates the comparable system for some or for all the
developing economies.
Indirect Impact
The UK is having a great reputation in respect to the hosting of the international events
such as the family planning, vaccinations and so forth. But very soon the civil services of the UK
will be engrossed to the negotiating the post EU arrangements which accounts for putting
emphasis on the new trade agreements which might results into rendering them unable to
organize such events (Pollard, 2018). Till now, UK has played the role of the financial
contributors in regard to the multilateral development of the system apart from being a crucial
voice on account of the EU's coordination meetings for instance, World Bank, World Health
Organization (WHO). But post Brexit this role will not be played which might result into a
weaker stance for the both UK and the EU.
Apart from the threat, that the economy is exposed to, there are certain other important
aspects as well which would have an impact over the UK. The UK is considered to be one of the
largest receiver of the research funding in the European Union. In the time period of 2007-13, the
country has received nearly €8.8 bn out of the total amount available of €107 on account of the
research and development. The graph below highlights that the UK was the second largest
receiver after Germany which secured the amount of €6.9 bn out of a total of €55.4 bn. But after
the Brexit, there will be a discriminating attitude towards the UK researchers with respect to the
funding and allocation of the projects. Due to the uncertainty prevailing on account of the future
funding for the research as the European partners are very confused in respect to employing the
new researchers while descending the old ones.

Illustration 1: Distribution of EU expenditure on research, development and innovation
in EU-28
In simple words, Brexit has created complexity in relation to the import and export which
has affected the demand and supply of the products. The Brexit has created an ongoing
uncertainty which has consequently resulted into reduction in the investment and mostly
importantly in regard to the manufacturing jobs (Martin and Gardiner, 2019). After the election
in 2019, few of the uncertainty were resolved but it has lead to the uncertainty on account of the
free trade agreement that can be negotiated. If the UK market is leaving a single market then the
firms would be experiencing a significant disruption in the import and export and entire supply
chain.
The uncertainty of the Brexit would be affecting the UK car industry.

Illustration 2: Car production fell for a 14th consecutive month in July
It can be stated from the above that there is a huge decline over the car production from
the year 2017 which continued till 2019 (British car industry suffers worst period of decline
since 2001). The UK car production was reduced by over 10% y-o-y basis in the month of July
and has declined in the 14 consecutive months. Therefore, the reduction in the is now more than
the 13 months down between the October 2008 and 2009 which was the time of global crisis.
Trade
Brexit would lead to the elimination of the Britain's tariff free status which will result into
increasing the cost of the exports which would affect the UK exporters as their products will
become more costly in Europe. Also, the tariff will also result into increase in the price of the
imports within United Kingdom (Hossain, 2019). The over one-third of the imports comes from
the European Unions. The increase in the price of the imports would consequently lead to the
creation of inflation along with declining the standard of living for the residents of the United
Kingdom. Also, the UK will also lose the benefit of the EU's state of art technologies which is
mainly offered to the EU members pertaining to the environmental protection and energy.

Apart from the above, the UK companies will lose its ability in respect to the bid on the
public contracts in the European nations. The most crucial lose is to the London in services
mainly in the banking sector. The practitioners might lose the ability to operate in the member
countries which will consequently lead to rise in the airfares, phone services etc. The foreign
countries will not be using the London as an English-speaking entry into the European Union
nations. The huge giants like Goldman Sachs, JP Morgan, and Morgan Stanley has transferred
approximately 10% of its clients and along with it, the Bank of America has transferred 100
bankers to its Dublin office and the 400 to Paris.
Jobs
On account of the jobs, the Brexit will affect the UK's younger workers. It is projected
that the Germany will be having the shortage of the labour to nearly 3 mn skilled workers by the
year 2030 (Germany could lack 3 million skilled workers by 2030, study finds. 2017). But these
jobs are no longer available to the UK workers after the Brexit. Also, the employers will find it
hard to find the applicants. The major reason behind this is the number of EU born workers are
declined by approximately 95 per cent in the year 2017. This has a major effect on the low and
medium skilled occupations.
CONCLUSION
It can be inferred from the above that currently the problem which the UK experiencing
pertaining to the Brexit has affected the complete trade scenario of the economy. In an easy
terms, it is basically affected the demand and supply of the goods and services which is mainly
due to the imposition of tariff and other tax duties resulting into increasing the final cost of the
product for the end users. The Brexit has not only affected the benefits that the UK was earlier
enjoying in respect to the funds for the research and development. Apart from this, the
manufacturing sector has been affected drastically as it has affected the production of the cars
and the other motors vehicles. Therefore, it can be stated that the whole problem that the UK
economy is facing is being around the concept of economics which draws attention towards
impact of problem over the demand and supply, imposition of the tax and tariff duties on the
import and export leading to affecting the demand and supply.

REFERENCES
Books and journals
Dhingra, S. and Sampson, T., 2016. UK-EU relations after Brexit: What is best for the UK
economy. Brexit Beckons: Thinking ahead by leading economists. p.59.
Hossain, M. S., 2019. Brexit: What Next? a Critical Analysis. Journal of the International
Academy for Case Studies. 25(3). pp.1-13.
Martin, R. and Gardiner, B., 2019. The resilience of cities to economic shocks: A tale of four
recessions (and the challenge of Brexit). Papers in Regional Science, 98(4), pp.1801-
1832.
Pollard, J. S., 2018. Brexit and the wider UK economy. Geoforum.
Zaidi, S. H. A. and et.al., 2017. Brexit: A review of impact on future of United Kingdom outside
the European Union. International Journal of Modern Research in Management. 1(1).
pp.14-33.
Online
British car industry suffers worst period of decline since 2001. 2019. [Online]. Available
Through:<https://www.theguardian.com/business/2019/aug/29/british-car-industry-
suffers-worst-period-of-decline-since-2001>.
Germany could lack 3 million skilled workers by 2030, study finds. 2017. [Online]. Available
Through:<https://www.thelocal.de/20170830/germany-could-lack-33-million-skilled-
workers-by-2040-study>.