Economic Analysis of Brexit's Impact on UK Living Standards - ECO 4012

This essay provides a detailed analysis of the potential positive and negative impacts of Brexit on the standards of living in the United Kingdom, utilizing economic policy analysis. It begins with an introduction to macroeconomics and its importance in government policy-making, followed by an examination of fiscal and monetary policies implemented in the UK. The essay then delves into the specifics of Brexit, incorporating theories such as neoclassical realism, constructivism, bureaucratic politics, and cognitivism to analyze its multifaceted nature. It further evaluates the potential consequences of Brexit on various aspects of UK living standards, considering factors like trade agreements, economic stability, and employment, providing a comprehensive overview of the subject matter.

Positive and negative
effects of Brexit on
standards of living in
the UK

Contents
INTRODUCTION.................................................................................................................................3
TASK....................................................................................................................................................3
With the help of Economic Policy analysis, outline and evaluate the possible positive and negative
effects of BREXIT on standards of living in the UK.........................................................................3
CONCLUSION...................................................................................................................................10
References...........................................................................................................................................11

INTRODUCTION
Macroeconomics is term that can be defined as the study of economy as a whole. It
studies the economic in various different aspects like aggregate demand, aggregate supply,
income, investments. For bringing balance in the economy, it is very important for the
government officials to have clear understanding and knowledge on the macroeconomics and
its policies. The stability in the country can be maintained by increasing interest rates,
decreasing unemployment from the nation and reducing the inflation rates. There are various
policies that are framed by the government in order to bring the stabilization in an economy
they are called macroeconomic policies. These policies are concerned with the operational
activities of economy as a whole which has its focus on attaining specific macroeconomic
objectives. The government make use of such policies to achieve the goals that will be
helpful to the economy for both long term as well as short term. They are termed as fiscal
policy and monetary policy. It helps in bringing the positive and sustainable growth in the
economy. To implement such policies is done by comparing the standards of living. As
United Kingdom is very developed social market and it has market – oriented economy, the
government has to consider so many factors while imposing any rules and standards.
The following report looks into the concept of macroeconomics in detail. It also comments on
the fiscal policy and monetary policy implementation in the United Kingdom and what
difficulties the Bank of England face when they decide the interest rates. It also elaborates
how these policies are imposed. Moreover, it also looks into the current data on the Gross
Domestic Product of United Kingdom along with the graphs. Furthermore, the report also
defines the certain sets of theories and how those can be applied in case of Brexit. It also
encompasses on the detailed theory of Brexit with the data and information. In addition to
this, it also looks into the positive and negative aspect that Brexit on the living standard of the
UK.
TASK
With the help of Economic Policy analysis, outline and evaluate the possible positive and
negative effects of BREXIT on standards of living in the UK.
Macroeconomics is that branch of economics which studies the overall performance
of the country. It is very important for the government authorities to have an understanding of
macroeconomics so that it can make projections on the long – term effects of their decisions.

In short, the study of aggregate economy is called as macroeconomics. The first and foremost
objective of macro economy is to attain the stable economic growth and to improve the
standard of living. The tools that are used by the government in order to keep the control and
to achieve the aim of economy are fiscal and monetary policies. The goals that are mentioned
can be accomplished achieving the supporting goals such as increasing employment
opportunities, increasing productivity in an economy and controlling the rate of inflation etc.
The economic indicators that are helpful for examining the distinct field of aspects are gross
domestic product which shows the size of an economy at the point of time, it is determined
by the government authority on an annual or quarterly basis. The other signifier is inflation, it
is the decrease in the purchasing power due to the increase in the overall levels of prices. The
third is unemployment it is the state where the people actually want to work or wants to get a
job but they are jobless and not getting the jobs (Dennison and Geddes 2018). The other
factor that affects the results of an economy is interest rates it is the additional amount that a
borrow has to pay when he repays the amount to the lender. Th government of United
Kingdom implements the monetary policy in the following ways:
Monetary Policy: It consists the use of factors like interest rates and other monetary
mechanism that have an impact on the levels of customer spending and demand of the entire
economy. The UK government aims to equilibrate the cycle of the UK economy by keeping
inflation rates low and avoid the state of recessions. The goals of UK monetary policy are
listed below:
 Lowering the inflation rates: The focus is to maintain Consumer Price Index CPI at
the rate of 2 % +/ - 1. This will help the government to encourage people foe saving,
investing and will also assists in the maintaining the international competitiveness. All
this will lead to higher investment in long- term.
 Balance in the growth of economy: The government of UK also centers its focus on
stabilizing the economic growth which is done by keeping the rate of unemployment
low.
The monetary policy is framed by the monetary policy committee of the Bank of England.
The MPC is independent to set- up the interest rates, but they have to meet the targets that are
made by the government for inflation rates. The base rate is also decided by the Bank of
England, it is the rate at which the commercial banks borrow money from the BOE. The rate
is set by the MPC after the inflation trends are analyzed by the Bank of England. It involves

the examining the scope of economic components like spare potential of the economy,
confidence of consumers, index of exchange rates and economic growth. From these stated
elements the Bank of England makes decision on whether inflation will fall or rise. If the
higher inflation is expected then there will be the increase in interest rates and if the inflation
is expected to be lower then the bank cut down the rates of interests. There are some
difficulties that arise through the monetary policy like liquidity trap, this happens when the
cut in the interest rate do not succeed in encouraging the economic activities. It is also tough
control so many aims with just one mechanism which is the interest rates this is because to
bring reduction in the inflation the bank might increase the interest rates, but this can even
result in the fall in growth of the economy. The other problems that the UK economy can
encounter is of time lags and there can be the adverse impact of the interest rates on the other
economic segments.
Fiscal Policy includes the government making changes in the taxation levels and when the
government spends for the purpose of impacting the aggregate demand and the level of
economic activity. The purpose behind setting up Fiscal policy is to balance the growth of
economy at the time of recession, keeping the inflation low that is less than 2 percent. The
success of Fiscal policy relies on the numerous components like size of the multiplier, if the
effect of the multiplier is huge, then the variation in the spending of government will have
great impact on the all in all economic demand. It also depends on the economic state, fiscal
policy is very powerful in a deep recession and in such case monetary policy is not sufficient
enough to boost the demand of an economy.
The below graphs represent the GDP of United Kingdom economy:

The above graph shows that the expansion on first quarter of 2022 by 0.8 % then it went to
1.3 % with the slow increase in forth quarter. There was increase in the service sector by 0.4
% this was due to the information and communication, food, transportation and storage
industries and not because of retail and wholesale as there was decline in them.
The term Brexit is made from two English words they are ‘Britain’ and ‘exit’. It means the
abolition of the United Kingdom process from the Union of Europe. The theories that can be
used to analyze the point of Brexit are: neoclassical realism, constructivism, bureaucratic
politics and cognitivism (Watson, L., 2018).
Neoclassical Realism: It is the perspective to foreign policy analysis that examines
nationwide politics by considering the behavior of an international system. Realists see global
members of the family as being characterized by the distribution of energy across the global
system. Neoclassical realism is defined by an understanding of the role that decision-makers'
perspectives and questioning play, with the important detail remaining that decision-makers –
and hence their state – behave in calculated, logical ways to maximize the country's benefit.
The power that Britain or the EU has in Brexit is thus shaped by structural characteristics
such as fabric competences, wealth, or military might, as well as how decision-makers
employ them. As a result, neoclassical realism enables to comprehend how the United
Kingdom or the EU deal with the constraints imposed by Brexit. Given that the EU's $13.80
trillion financial system surpasses the United Kingdom's $2.44 trillion, the UK risks
overstretching. Other underlying problems, but from the other hand, may provide Britain with

further leeway. Britain puts its military power on the table in the form of its commitment to
NATO, but it does have a huge trade imbalance with the EU, and Donald Trump's victory
and Russia's conduct toward Eastern Europe have thrown the European economic and policy
system into disarray. The most important attempt for the closing EU may be discovering the
crucial cohesiveness in decision-making.
Constructivism emphasizes on the norms, traditions, and rules that govern global and
European politics. It's not so much about the physical abilities as it is about how we see
ourselves in relation to the rest of the world. As a result, constructivists understand how
identities are formed and their role in international policymaking. In the context of Brexit,
Britain's or the EU's national interests might be shaped based on who they believe they are
and what role they believe they have to play in the world. For constructivists, any
understanding of Brexit would involve verification of how the United Kingdom and the final
EU member states form their identities and how they play out in relation to one another
(Watson., 2018).
Theories of bureaucratic politics focus on how the product - the foreign policy or character
policy position – is built in a state's bureaucratic and institutional organization. To understand
why the UK or the EU adopt the views they do on Brexit, we must look at the politics,
arguments, negotiations, and concessions that drove them to those situations in the first place.
As a result, Brexit might be shaped by the establishments on both sides recognizing what they
can and cannot achieve with the mechanisms at their discretion. Because of the complexities
of Brexit, the majority of the argument has so far focused on tactics rather than coverage.
While constructivism focuses on widely held values and concepts, cognitivist approaches
focus more on the mindsets – or psychology – of the people who make character decisions.
The values and personalities of each indicate that they will react differently to the same event.
This method assumes that if the person wants to understand how Britain or the closed EU
handled Brexit, then it should go into the thoughts of the most significant persons involved to
see how their perceptions shaped the strategy.
The United Kingdom eventually exited the European Union (EU) on January 31, 2020. It
became a lengthy ancient movement that allowed for a crucial extrude within the rules and
politics of the final 27 European Union member states, mostly the United Kingdom. It's
fundamental to see how this will affect policies and what measures nations will choose to
deal with it (Caporaso., 2018).

 By leaving the EU, the United Kingdom departs a slew of global accords negotiated
by or on behalf of the EU, to the benefit of its Member States, on topics as diverse as
alternative energy, aviation, fisheries, and civil nuclear cooperation.
 However, with only eleven months to discuss, there are a number of extremely easy
and minimum offers that may be made to defend alternative, fisheries, and security.
 In that situation, by the end of 2020, divergent objectives for the alternative
discussions may have increased the risk of a fresh no-deal situation.
 The sooner an agreement on residents' rights, cash, and the Irish border is reached in
the absence of a deal, the preferable.
 Both of them will need to be financially prepared for the financial shift in buying and
selling on WTO terms.
 The first priority is the trade agreement, which ensures tariff-free and quota-free
product flow between the EU and the UK (Manners., 2018).
 The EU, on the other hand, will best adhere to 0 price lists and 0 quotas if the United
Kingdom commits to 0 dumping – that is, no longer lowering social and
environmental standards to compete with the EU.
 The EU's unwillingness to give offers into the exchange accord may cause a
stumbling block in negotiations.
 The EU is attempting to connect trade to keeping the status quo on entry to British
seas, which is thought to be a significant issue for the United Kingdom, increasing the
likelihood of confrontations.
 Even non-exchange themes may be fraught with political ramifications, as EU
Member States will be need to rewrite their policies in light of the new offers and
rules.
Positive and negative impact of Brexit on standards of living in the United Kingdom.
 The European Union (EU) is the UK's most important trading partner.
Approximately half of the UK's alternate is with the EU. The EU club lowers the
cost of alternative expenditures between the UK and the EU.
 This lowers the cost of goods and services for UK customers and allows UK
businesses to export more. Because of improved tariff and non-tariff limitations to
alternate, leaving the EU may reduce alternate between the UK and the EU.
Furthermore, the United Kingdom may reap less benefits from EU integration of

the destination market. The primary financial benefit of quitting the EU might be a
reduction in internet contributions to the EU budget.
 All EU nations lose earnings after Brexit. The ordinary GDP fall withinside the
UK is £26 billion to £ 55 billion, approximately two times as large as the £12
billion to £28 billion earnings loss withinside the relaxation of the EU combined.
Non-EU nations revel in a few smaller earnings gains.
 If the United Kingdom unilaterally eliminated all its price lists on imports from
the relaxation of the arena after Brexit, UK earning fall with the aid of using 1%
withinside the positive case and 2.3% withinside the pessimistic case.
 In the lengthy run, decreased change lowers productivity. Factoring in those
results substantially will increase the expenses of Brexit to a lack of 6.3% to 9.5%
of GDP approximately £ 4200 to £6,400 consistent with household.

CONCLUSION
From the above report it can be concluded that in the perfect competition market it is
very crucial as it focuses on the results of the economy like variations in the output of
economy, interest rates, foreign exchange rates and the balance of payments. Reduction in
poverty, social equity and sustainable growth can only be achieved by framing efficient
monetary and fiscal policies. It also gives the clear representation on the importance of
macroeconomics. Macroeconomics facilitates to assess the assets and competencies of an
economic system, churn out methods to growth the countrywide income, increase
productivity and create activity possibilities to upscale an economic system in phrases of
economic development. It can also be summed up that the decision for one of the “great”
member states to abandon the European Union is unprecedented. Therefore, negotiations for
the detachment, to some degree like a divorce, must be carried out with all the guarantees
necessary so as not to add more uncertainty to the already uncertain current position of
European integration. The European Union must contribute to generating stability and
confidence inside and out its borders, but neither the result of the referendum or what has
been happening so far lead to this. Growing international locales must address lots of new
underlying issues in order to achieve long-term economic growth and inclusivity. Low levels
of productivity and global competitiveness, inefficient government spending, insufficient
domestic aid mobilisation, fee misrepresentations from the monetary device that discourage
sustainability, loss of monetary resilience, rising debt levels, an uncertain alternate
environment, and the growing threat of climate change are some of these factors.

References
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