Understanding The Economic Impact Of Brexit | PDF

Running Head: OPEN ECONOMY MACROECONOMY
Open Economy Macroeconomy
Name of the Student
Name of the University
Author note

OPEN ECONOMY MACROECONOMY1
Table of Contents
Part a............................................................................................................................2
Brexit and impact on UK economy...........................................................................2
Part b............................................................................................................................5
Future outlook for Brexit............................................................................................5
Economic shocks and Policy response.................................................................5
Future of different economic sectors.....................................................................9
Reference list..............................................................................................................11

OPEN ECONOMY MACROECONOMY2
Part a
Brexit and impact on UK economy
Brexit refers to the political event addressing the leaving proposal of United
Kingdom from European Union. As of referendum of 23rd June of 2016, 51.9%
participating UK electorate had voted in favor of leaving UK. Therefore, UK has to
leave EU by March 2019 (Dhingra et al. 2016). The event though largely political but
this has significant impact on the economy of United Kingdom.
The first direct impact of Brexit is on the exchange rate market. The sterling
rate jumped to a considerable high level. The surging currency directly affected the
largest companies of UK that recorded a decline a growth rate to 1.6%
(theguardian.com 2018). The major macroeconomic indicators of the economy
include GDP growth rate, inflation, unemployment, interest rate and other related
indicators.
The inflation in the economy has risen sharply after the declaration of Brexit
referendum. The measured consumer price index has declined until June 2016.
However, the rising exchange by increasing the price of imported goods has
increased the overall price index. The consumer price inflation rose from 2.6% in
July to 2.9 percent in August (theweek.co.uk 2018). The rising price of import
including prices off food, cloth and other necessary items picked up the inflation rate.

OPEN ECONOMY MACROECONOMY3
Figure 1: Brexit impact on consumer price
(Source: theguardian.com 2018)
The weak pound was expected to stimulate UK’s export and hence would address
adverse effect lower consumer spending in the economy. However, in reality UK
has faced significant difficulty in expanding trade outside EU border (Van Reenen
2016). The high import price make the economists’ to expect the trade deficit to be
widened to £3.2bn.
Figure 2: Trade balance of goods and balance
(Source: theguardian.com 2018)