Brexit effects on the businesses in the UK

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Introduction

Britain voted to leave European Union (EU) on June 2016 (Kierzenkowski et al., 2016, p. 74). The UK has been the best place to do businesses, but Brexit is likely to change it. Brexit has severely affected the UK economy, and many economists are of the opinion that withdrawing from EU is a big mistake for Britain. On the other hand, the UK has also benefited from Brexit. This paper will discuss effects of Brexit on the businesses in the UK.

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The first effect is that it is likely to make the cost of supplies to hike up. The reason for this is that the free trade between EU and UK will no longer be prevalent. The statistics that were conducted in 2015 showed that the UK exported goods worth £ 133 billion to the EU (Dhingra et al., 2016, p. 153). Leaving EU without negotiating a new trade agreement will make the UK experience losses of approximately £ 4.5 billion every year (Emmerson, Johnson & Mitchell, 2016, p. 1679). Increase in tariffs will make significant exports to hike up and hence to do businesses in the UK to be less competitive in the markets of EU as well as globally (Dhingra et al., 2015, p. 286). This may make firms to start reducing their prices to maintain their competitive edge and thus leading to lower profits. Brexit hence will decrease UK exports, and therefore it is necessary for the UK government to negotiate for new trade agreements with the EU.

Another effect of Brexit to the UK businesses is that it will lead to loss of access to a single market. In the year 1960, the UK and the EU formed the European Free Trade Association (EFTA). Brexit might make EU change policies and hence will cause the UK to lose access to the single market. According to Kierzenkowski et al., (2016, p. 71) excluding from single market will make the UK lose £ 75 billion. Even though after Brexit the UK won’t have to pay 9 billion Euros every year towards EU budget, the costs associated with Brexit outweigh its benefits (Crafts, 2016, p. 280). The UK should thus consider negotiating new free trade agreements with EU and countries globally.

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Brexit will also have an impact on employment and labor. According to the leading job site, voting to leave the EU by the UK has led to spiking up in the number of migrants looking for employment opportunities from other countries. There are very many people who are still unemployed in the UK as a result of the recession (Simionescu et al., 2017, p. 39). The latest research showed that there are over 2 million immigrants from Europe who are working in the UK. Most of them work in fields where there is shortage of skilled workers such as IT, construction, and engineering (Matti & Zhou, 2017, p. 1132). Immigrants from the EU have also mainly contributed to the sector of health care regarding employment. Brexit will make workers from other countries to leave the country and hence resulting in a huge gap between supply and demand for labor (Hix, Hagemann & Frantescu, 2016, p. 276).

Another effect of Brexit is that it has led to the reduction in foreign direct investment (FDI). About half of the UK’s FDI comes from the rest of EU. Brexit has made tariffs and trade costs to become high and hence resulting in a decrease in investments in the UK (Dustman & Frattini, 2014, p. 580). Brexit has also led to negative inflows. The UK has been attracting a lot of foreign investors because of it being part of the single market, but tariffs that have caused high-cost barriers have made the investors export to other EU countries (Anderson & Wittwer, 2018, p. 64). Brexit has thus led to a reduction in investments in the UK because investors face barriers such as high tariffs and hence the UK should negotiate to lower the barriers.

On the other hand, there are some benefits of Brexit to the UK businesses. One of them is that the UK has been freed from contributing to the joint budget. The UK has been contributing billions of money every year to the EU budget. The UK has saved the money that could have contributed to EU every year. Based on this, Brexit has been a benefit to the UK because it made the UK save billions of money (Cumming & Zahra, 2016, p. 689).

Another benefit of Brexit is that the UK is free to make trade agreements. The UK can make deals with other nations globally after leaving EU. Countries like Australia and China are ready to make trade deals with the UK after Brexit (Coulter & Hancké, 2016, p. 149). The trade deals with China will make the UK explore multibillion pounds. There will also be a reduction in the barriers to service industries in the UK such as insurance and banking (Ramiah, Pham & Moosa, 2017, p. 2512). Leaving the EU is thus seems to have been the best decision for the UK.

Lastly, Brexit lessened obligations and regulations. The UK is no longer subjected to comply with EU relations. The UK will also have no burden of paying money towards the EU membership. Lesser regulations have thus saved the UK from spending billions of pounds and hence leaving EU was necessary (Sampson, 2017, p. 168).

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Conclusion

The UK should consider negotiating new trade agreements after leaving EU to save it from costs. Brexit will lead to hike in the price of supplies because tariffs will increase and hence exports will also hike up. Brexit will also make the UK lose one single market due to changes in trade policies. Foreign direct investments and labor will also be affected by the new trade policies. Some of the benefits of Brexit are that the UK will no longer contribute to joint budget, it will also be free to make trade agreements and will lead to lessening of obligations and regulations. It was better for the UK to remain as a member of the EU because costs of Brexit outweigh its benefits. Lowering trade barriers such as high tariffs is also necessary for the UK government to attract investors to the country.

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  1. Anderson, K. and Wittwer, G., 2018. Cumulative Effects of Brexit and Other UK and EU27 Bilateral FTAs on the World’s Wine Markets.
  2. Crafts, N., 2016. The Growth Effects of EU Membership for the UK: a Review of the Evidence. University of Warwick CAGE Working Paper, 280.
  3. Coulter, S. and Hancké, B., 2016. A bonfire of the regulations, or business as usual? The UK labour market and the political economy of Brexit. The Political Quarterly, 87(2), pp.148-156.
  4. Cumming, D.J. and Zahra, S.A., 2016. International business and entrepreneurship implications of Brexit. British Journal of Management, 27(4), pp.687-692.
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  7. Dustmann, C. and Frattini, T., 2014. The fiscal effects of immigration to the UK. The economic journal, 124(580).
  8. Emmerson, C., Johnson, P. and Mitchell, I., 2016. The EU single market: The value of membership versus access to the UK (No. R119). IFS Reports, Institute for Fiscal Studies.
  9. Hix, S., Hagemann, S. and Frantescu, D., 2016. Would Brexit matter? The UK’s voting record in the Council and the European Parliament.
  10. Kierzenkowski, R., Pain, N., Rusticelli, E. and Zwart, S., 2016. The economic consequences of Brexit.
  11. Matti, J. and Zhou, Y., 2017. The political economy of Brexit: explaining the vote. Applied Economics Letters, 24(16), pp.1131-1134.
  12. Oehler, A., Horn, M. and Wendt, S., 2017. Brexit: Short-term stock price effects and the impact of firm-level internationalization. Finance Research Letters, 22, pp.175-181.
  13. Ramiah, V., Pham, H.N. and Moosa, I., 2017. The sectoral effects of Brexit on the British economy: early evidence from the reaction of the stock market. Applied Economics, 49(26), pp.2508-2514.
  14. Sampson, T., 2017. Brexit: The economics of international disintegration. Journal of Economic Perspectives, 31(4), pp.163-84.
  15. Simionescu, M., Bilan, Y., Smrcka, Y., and Vincúrová Z., 2017. The effects of European economic integration and the impact of brexit on the UK immigrants from the CEE countries. E+ M Ekonomie a Management 20 (1), p.29.
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