Long Term Economic Prospects in UK Economy

Long Term Economic Prospects in
UK Economy with Reference to
Brexit and Covid-19

Literature Review
Economic growth is the increasing production of goods and services in a particular period using
scarce economic resources such as labor, land, capital, and entrepreneurship. Proper utilization of
the resources produces economic benefits for the economy and the people of that economy. In a
growth economy, the business organizations do well and create job opportunities which
ultimately increase the growth of the economy (Morita, Takatsuka, and Yamamoto, 2015).
Government policy, the attractiveness of markets to investors both local and international,
international trade, and exchange rate are the indicators of improving the economic condition of
a country. The UK is one of the largest economies in the world and the country is attractive to
foreign investors. The country is technologically developed and human capital is skilled enough
to work in the advanced technological environment. The business organizations are investing in
the UK, FDI is increasing after the pandemic through FDI has been reduced after Brexit and
during a pandemic. Government policies like fiscal policy and monetary policy have also
impacted the economic growth of the UK during the pandemic (Morita, Takatsuka, and
Yamamoto, 2015). The economy will expand surprisingly in the long term as business activities
are expanding after the pandemic situation. Economic resources like labor are providing training
to be skilled in line with the requirement of technologies and changing business environment.
The labor is hired from different cultural backgrounds of the world which increases workplace
diversity within the organization and this diversity leads to innovation of technologies and
techniques (Lavery, Quaglia, and Dannreuther, 2018). UK government’s policies are
expansionary and in favor of the business organizations which increase aggregate demand in the
market and improve the growth of the business. Employment opportunities create demand and
demand increases economic growth for a longer period. International trade and balance of
payment are related where UK exports technological products and capital inflows are higher than
capital outflows. The favorable flows of products and capital create a surplus balance of payment
which improves the exchange rate and makes foreign products cheaper in the UK market (Liu,
2015). The financial market in the UK is strong enough and the companies can raise funds easily
whenever the companies need money for business operations at the low cost of capital. For
sustainable business operations and sustainability of the environment, the government imposes
laws and reduces the tax rate on income which impels the business organizations for expanding
business. Thus the UK economy is growing gradually though in 2008 the country confronted a

big frustration in history but immediately the country has recovered its economy through an
expansionary policy of the government. The government provided support for the development
of human capital through training programs and also provides incentives for technological
advancement (Mudra, 2021). Furthermore, the country is naturally developed as the geographical
location has enriched the country with the beauty of nature. Tourists make travel in the country
which increases the inflows of the fund and increases aggregate demand for goods and services.
The government provides adequate support for the development of geographical beauty and
makes the country attractive to foreigners. The government makes policies considering climate
change and prioritizes the environmental issues while taking policies. The government policies
are sustainable which ensures the safety of the social community as well as the development of
business performances (Lavery, Quaglia, and Dannreuther, 2018). Foreign companies like
TATA, Toyota invest in UK which increases the FDI as well as creates employment
opportunities. In the future, the economy is expected to be more attractive for business
organizations as government policies are in favor of business organizations. Since technologies
are improved, the communication and transportation system is improved to ensure proper
transformation of information to intended users and delivery of products easily. Thus the
facilities attract business organizations to make an investment in the UK and this improves the
UK’s economy on large scale (Owen and Walter, 2017). This growth and improvement of the
economy are for a longer period where the growth will be expected to be continued.
EU is an economic union of some European countries that got tariff-free transaction facilities
while trading among them. The UK is one of the countries but the country has exited from the
union which is known as Brexit which has large-scale impacts on the UK economy. While the
UK was a member of the EU the country could trade without tariff and as the country is
technologically attractive, other member countries invested in the UK (Rosamond, 2018). But
after the Brexit free movement of factors of production and trade of goods and services has been
restricted which has reduced trade with other EU members. FDI has been decreased drastically
after the Brexit and European companies have divested their fund which has increased capital
outflows which have impacted the balance of payment and exchange rate against the dollar.
After Brexit funds have been decreased in the market and the government has expanded the
monetary policy to increase the supply of money for the business organization (Lavery, Quaglia,
and Dannreuther, 2018). The expansion of monetary policy has increased the supply of money

and inflation at 1.7% which has increased the livelihood of households by £404. European
companies have withdrawn their investment due to restrictions on the free movement of factors
of production and high transaction cost. The companies that produce their products in the UK
have to pay high taxes while trading the products as other EU countries impose a high rate of
tariff. Since the companies have withdrawn their investment and this has created a deficit
balance of payment (Kozlova, 2020). On the other hand, new FDI has been decreased
surprisingly for example the estimated fall of FDI was 37% after Brexit. In 2017 FDI was £80.6
billion which has reduced to £49.3 billion after the Brexit execution. Business activities have
been reduced alarmingly and this has created unemployment who worked in the companies.
Furthermore, based on the EU companies, many other local organizations have been established
which have also been shut down after the Brexit. The employment rate has been decreased and
the unemployment rate has been increased after Brexit (Evi, 2021). Brexit has long-term
negative impacts on the UK economy in terms of creating unemployment, reducing the standard
of living, and reducing government income. Balance of payment has also been impacted by
Brexit as capital outflows have increased and this has made foreign goods expensive in the UK
market (Lavery, Quaglia, and Dannreuther, 2018). Because of the Brexit, the UK has lost per
capita income by 0.6% and GDP by 1.2%. According to a report published in 2018, the UK
economy will be lost by 2% to 8% for the next 15 years due to the changes in the economic
structure after Brexit. Many people have become unemployed and lost their living standards
(Cochrane, 2018). Furthermore, increasing inflation after Brexit has increased the price level of
goods and services, the government has provided healthcare support but it was not sufficient for
the country as a whole. Economists argue that being an EU member was beneficial for the UK
but leaving the union would make the country vulnerable and even some of the UK regions are
most vulnerable than other parts of the world in terms of trade with the EU (Rothbarth and Clark,
2017). For a long-term period, the factors of production will not be moved without free of tariff
and this has decreased the labor efficiency and effectiveness of labor within organizations.
Cultural diversity in the workplace has been lost to some extent and this has decreased
innovation (Cochrane, 2018). But it is expected that the UK will recover its economy soon
through expansionary policy and reducing the tariff on FDI along with international trade. UK
government has given the emphasis on investing in green projects considering the environmental
issues and climate change to make the business operations sustainable.

The outbreak of Covid-19 has impacted the UK economy for the short term period as during the
pandemic government has imposed restrictions on public gatherings and business operations.
Transportation has been banned during the period and the government has provided economic
support to households (Charlton, 2019). Economic activities have been restricted and many
business organizations have failed to pay salaries to employees which has reduced consumption
and influenced the aggregate demand. The government has increased expenditures to push the
aggregate demand but many organizations have failed to survive during the pandemic (Cai and
Zhang, 2017). The government has increased demand in the healthcare sector which ultimately
did a small scale contribution to the national economy of the UK. Fundraising for charitable
organizations has been reduced due to social distance and failure to organize campaigns
(Charlton, 2019). The outbreak of pandemic has impacted the tourism sector of the country as
traveling has been banned during Covid-19. Foreigners did not get access to enter the country
and sports programs were also banned during Covid-19 which has reduced the revenue of the
sectors and reduces the income of the government (Zhang, 2021). The impact on the tourism
sector is for a short-term period as after the vaccination program the economy began to restart
and perform well (Cai and Zhang, 2017). As business operations have been restricted and
businesses organizations have been shut down during the pandemic the country receives a little
amount of FDI but after the vaccination program foreign companies have increased their
investment in the UK. The volume of export has been decreased and the volume of export has
also decreased during the pandemic due to the decreasing demand. Many people have become
unemployed during the period and their income has been reduced for which they have spent less
which has decreased aggregate demand. The economy has fallen during the pandemic for a
shorter period but after the vaccination program, the economy has begun to shine (Lavery,
Quaglia, and Dannreuther, 2018). Transportation, especially the aviation sector has faced huge
losses due to restrictions of operating international flights along with local flights. Local
transportation has also been stopped which has faced a huge loss. The hospitality sector has
become more vulnerable than any other sector as the hotel, motel and restaurant were closed
fully during the pandemic through some restaurants have provided online services. As income
has reduced, the households have reduced their expenditures and consumption for buying foods,
clothes, and property (Barber, 2017). These ultimately sloths the economic growth of the UK in
2020 but in 2021 the economy began to flourish as Covid-19 restrictions have been lessening.

During the pandemic, the UK government has taken expansionary monetary policy and fiscal
policy to motivate consumption and investment activities but the expansionary policy has
increased inflation. The pandemic has slow down the economy for a short term period and now
the UK economy has flourished surprisingly since FDI has increased technological development
and facilitation of transportation has been ensured by the government (Belova, 2021). The
tourism industry has been flourishing and international tournaments have been organized by the
authority which has increased the flows of tourists and foreign funds as well. The UK
government focuses on the expansion of business and the policy which is made by the
government is forward-looking to flourish the economy in a handsome manner (Lavery, Quaglia,
and Dannreuther, 2018). Climate change, environmental factors, and sustainability are
considered by the government while preparing economic policies. The government has increased
expenditures to increase the aggregate demand and push the economy toward growth.

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