Analyzing the Macroeconomic Effects of Brexit on the United Kingdom

This report provides a detailed analysis of the macroeconomic impacts of Brexit on the United Kingdom. It explores the potential consequences of various Brexit scenarios, including unilateral extraction, leaving the single market, and departing the Custom Union. The report examines the implications for UK businesses, financial services, and the balance of payments. It also analyzes the effects on public debt, national income, and immigration. The analysis considers the uncertainty surrounding trade deals, the impact on public finances, and the effect on immigration from both within and outside the EU. The report concludes by highlighting the complex interplay of economic factors and the uncertainty surrounding the long-term consequences of Brexit on the UK economy, emphasizing the need for careful consideration of trade-offs and potential economic impacts.

Running head: UNDERSTANDING INTERNATIONAL MACROECONOMICS
Understanding International Macroeconomics
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To begin with, it is necessary to acknowledge that Britain has the requirement to do
unilateral extraction and after that it is necessary providing the scenario to initiate discussions
with the European Union in respect of a deal on trade. On the other hand, in respect of the
outcomes, it can be mentioned that unilateral extraction will take the British exporters too far.
They will have no information relating to the potential future expenses for conducting trading
with the European Union.
Taking into consideration the consequences of Brexit for the UK business cycle in terms
of leaving the single market can be stated that the politicians as well as commentators are being
faced with the reality that the UK will be unable to do the imposing of limitations on the free
movement of citizens from Europe into Britain. It will be enjoying as well, the sustained
membership regarding the single market. This will not be allowed by the rest of Europe and
choices are required to be made by the UK. However, other trade-offs as well as major economic
consequences are still not being identified (Johnson 2014). For instance, the consequence to
leave the single market will probably end the rights of every services organization that are based
in the UK for selling into the markets in Europe devoid of getting discriminated or getting faced
with regulatory barriers locally. Specifically, this would be stating that the financial
organizations that are placed in London will be losing their “passport” for selling the services
across the bloc. Most of them have clarified that they will be moving their European head-offices
out of the UK capital when this will occur and as a result, taking the jobs out of the country. To
leave the single market might as well have a specific meaning that the euro-dominated
derivatives clearing trade might get compelled in shifting from London into a destination in the
European Union, which will again create a dearth in jobs within the City.

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This will also be influencing the balance of payments. In 2015, financial services
reported in respect of approx. a third of the country’s 90 billion pounds of service exports to the
European Union. There was also the accounting of the excess in respect of financial services
trade of the European Union regarding a quarter of the country’s overall services export surplus
in the previous year. If the traditional services surplus of Britain will get corroded, then the
country’s worryingly large current account shortage will be getting threatened for getting
yawned even wider.
Moreover, the consequences of quitting the Custom Union of the EU will be stating that
there will occur the negotiation of the UK regarding an extensive free trade deal with the rest of
the EU towards dismantling of every tariff regarding goods. Therefore, to leave the custom union
will still be necessitating custom verifications that are considered to be costly regarding every
British goods that will be making an entry into the single market. In addition, Dublin will be
having the requirement for imposing custom checks on products that will make an entry into its
territory from Northern Ireland. This will however, create a serious threat to unpick the peace
method. The UK as well as Ireland might both possess the willingness of forgoing custom checks
and they might also, be having the ability for agreeing upon an agreement on free travelling, but
this is not just regarding the two governments (Stock 2015). The remaining countries of Europe
will not be allowing Ireland for compromising the sole market’s integrity by permitting the
importing of goods into Ireland from Britain without getting checked.
Also regarding the departing the European Union without any negotiations, it is being
argued that the Government must simply be ignoring the Article 50 exit-process. Without getting
discouraged in having talks with other European governments, Britain is required to unilaterally
withdraw and post that it is required offering the aspect of beginning discussions with the

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European Union regarding a trade deal. However, taking into consideration the consequences, it
can be stated that unilateral withdrawal will be taking the British exporters too far (Lane 2014).
They will be having no knowledge of the probable future expenses to do trading with the
European Union, considered as the country’s largest single trading partner. In addition to this,
the UK will be having an instant separation from the reporting of around sixty agreements
relating to free trade within the European Union as well as the remaining countries globally. This
uncertain move might be resulting in a significant hit to the domestic investment as well as
anticipatory action by foreign organizations in shifting operations out of the UK (Nam 2017).
In respect of unilaterally lifting every tariff barriers from the UK, it has been argued that
the Government should not try to do the striking of a unique deal regarding trade with Europe. It
has also been stated that as an alternative, the UK is required scrapping every tariffs in respect of
products as well as service imports from anywhere else throughout the globe as well as exporting
to others under the necessary rules regarding the World Trade Organization. There will occur an
enormous economic proposition of this. For instance, the British car exporters to Europe will be
faced in an instant manner the European Union’s 10 percent import tariff regarding motor
vehicles. In addition, the manufacturing firms of the UK will be flooded with huge amount of
extremely low priced competing imports from the developing nations. The consequences of this
on the UK manufacturing will be shattering (Gopinath 2014).
Concerning the prospect regarding the UK public debt, it can be stated that he leaving of
UK from the EU, will be impacting upon the UK public finances. The overall influence upon the
public finances will be depending on two distinctive elements such as the mechanical effect as
well as the national income effect. The mechanical effect explains that being a net contributor in
respect of the European Union, separating from the EU will be strengthening the public finances

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since, the country’s net contribution will plummet. However, taking into consideration the
improbability over the type of any subsequent agreement with the EU, it might not be
plummeting to zero (Crotty 2017). The national income effect explains that any influence to
leave the EU on UK national income will be affecting the public finances. A growth in national
income will be strengthening the public finances, where a fall will be weakening them.
Moreover, in accord to the mechanical effect, it can be stated that the national gross
contribution of the UK in 2014 was 18.8 billion pounds that is considered to be almost 1% of
GDP. It is not certain regarding the trade deal that would be getting negotiated after exiting from
the EU. The major campaigners of Brexit have ruled out any deal that will be having the
involvement of membership of the European Economic Area such as Norway. If the country was
supposed to be making proportionally the same net contributions that is being made by Norway,
these might be amounting to almost half of the country’s net contribution, which will leave the
country with a reinforcement of the public finances of approx. 4 billion pounds (Gandolfo 2013).
In addition, in accord to the national income effect, it can be stated that if exiting from
the European Union were to have no impact on the national income, then the public finances will
be getting strengthened in an unambiguous manner. On the other hand, the public finances are
perceptive to even comparatively little changes in national income. Therefore, when the
economy would be simply 1% bigger or smaller, then to borrow as a national income share will
be in today’s terms approx. 14 billion pounds. There is uncertainty regarding the precise
influence to leave the EU on national income (Bernanke 2015). There is uncertainty relating to
the specific dealing the country will be reaching on trade and also the impact of each of these on
development.

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Concerning the impact on immigration, there is also high uncertainty regarding UK’s
impact on leaving the EU regarding immigration from outside the European Union. However, it
is quite certain that there will occur reduction in immigration from within the EU. It has been
found that, on average, the immigrants are found at present to be paying more taxes, receiving
reduced amount of out-of-work advantages and placing lower demands on public services in
comparison to the native population (Ban 2015). This might change if the immigrants stay in the
UK till their retirement, and it has also been estimated that lower immigration will be weakening
the long-run public finance position of the UK.
In conclusion, it can be stated that the reforms to taxes as well as benefits, and changes to
the way in which the planning of public spending is done, will be affecting their association with
national income. Future changes in national income will not be similar from the changes that
occurred earlier. In addition, there is uncertainty regarding the precise influence to leave the EU
on national income. There is uncertainty relating to the specific dealing the country will be
reaching on trade and also the impact of each of these on development. The national income
effect explains that any influence to leave the EU on UK national income will be affecting the
public finances.

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