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ECON3008 - Understanding the International Macro-economy

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university of southampton

   

International macroeconomics (ECON3008)

   

Added on  2020-02-24

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ECON3008 - Understanding the International Macro-economy assignment, we will discuss about the UK and the economy of the UK in recent times,i.e. Britain’s exit from the European Union. More than 30 million citizens of the UK took part in a referendum on June 23, 2016 and51.9% of people voted in favor of the UK leaving the EU.

ECON3008 - Understanding the International Macro-economy

   

university of southampton

   

International macroeconomics (ECON3008)

   Added on 2020-02-24

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Running head: INTERNATIONAL MACROECONOMYBrexit and UK economyName of the Student:Name of the University:Author note:
ECON3008 - Understanding the International Macro-economy_1
1INTERNATIONAL MACROECONOMYPart 1Consequences of Brexit for the UK business cycle‘Brexit’ is the popular term for one of the biggest events in the economy of UK in recenttimes, i.e. Britain’s exit from the European Union. More than 30 million citizens of UK took partin a referendum on June 23, 2016 and 51.9% of people voted in favor of UK leaving the EU. Theimmediate effect on the country was that, David Cameron stepped down from his position andTheresa May became the new Prime Minister of UK (Business Insider 2017). Theresa May announced that Britain would have a hard Brexit. She has triggered the exitof Britain from EU from 29th March, 2017 (BBC News 2017). It would take two years for formalnegotiations. Hard Brexit refers to giving up the complete access of the single market of EU andtotal access of customs union along with the European Union. The hard Brexit would give thefull control over its international borders, making new deals for trade and apply its own laws onits own territories. However, it is too soon to predict an impact of Brexit on the British economy.The impact of EU referendum has provided the experts a case for studying the behaviorof GDP and economic growth when it is exposed to a negative shock, obtained from politicaluncertainty. The immediate effect was on fall in the share market and in the value of pounds,15% against the USD and 10% against the Euro. The economy also shrank 0.2% due to theinstability in the market. In the current period, it was predicted that the economy would go downvery rapidly. However, surprisingly, the economy grew 1.8% in 2016, only after 1.9% ofGermany. The growth slowed down a little in 2017, but it is still expanding. Inflation stood at2.6% but unemployment fell to 4.5%, lowest in the last 42 years (Market-inspector.co.uk 2017).
ECON3008 - Understanding the International Macro-economy_2
2INTERNATIONAL MACROECONOMYOnce it is implemented, the UK exports would be hit hard. EU was the biggest tradepartners of UK. Once Brexit is implemented, pound might depreciate further. This would makeexports cheaper and imports costlier. This would lead to more exports from UK and less importto UK. Production in the country will increase. The exchange rate would go up for UK.However, due to new trade agreements with EU, UK might have to pay more tariffs on exports.This would have a negative effect on the UK businesses. In 2015, UK exported goods of almost£133 billion to the EU, and this was half of total global exports of goods. It is predicted that, ifnew agreements are not made, UK might face a loss of almost £4.5 billion a year due toincreased tariffs of 10%. This would also make the businesses less competitive in the market.The loss of access of the single market is estimated to bring a loss of almost £75 billion. Theunemployment is also estimated to increase to 6.5% once UK finally leaves the EU, as themigration laws would change (Allen and Scruton 2017). Cyclical fluctuations in the economy refer to the alternate periods of expansion andcontraction of the economy, lasting up to 18 months or longer from peak to the trough of theeconomic cycle. During expansion, the aggregate demand increases and falls during contraction.The businesses react to contraction by cutting the costs, employment, and delaying investments.Drivers of cyclical fluctuations are attributed to level of aggregate demand, level of labor supply,exports and imports, and demand and supply side shocks (Miles, Scott and Breedon 2012). UKhas been going through economic contraction for the past few years. Till Brexit, UK wasfollowing the rules of customs union, trade rules with EU and had access to the single market.There was mobility of labor across the countries. Brexit would hamper those. Britain would haveto enter into new trade agreements with EU as well as with rest of the world as an independentnation. The aggregate demand for the British goods is expected to rise in the global market. The
ECON3008 - Understanding the International Macro-economy_3

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