Sample Economics Paper on Brexit in the UK

Brexit simply refers to UK’s withdrawal from the European Union. The UK voted to leave the European Union on 23, June 2016 after conducting a referendum. The nation is currently Europe’s major international financial centre and leads in most financial services areas. The main economic benefit of leaving the EU would be a lower net contribution to the EU budget (Dhingra et al 3). Also, by embracing Brexit, the UK puts itself in a more controlling position in regulating the influx of immigrants to the country from EU states. By doing so, the citizens of UK get more job opportunities whilst also experienced improved quality of life and wages. On the flip side, the decision to leave the European Union will have some adverse effects on the economy of UK. On an exit from the EU, the financial services industry will no longer have access to the massive single market in financial services on the basis of current arrangements (Moloney 7). There will be lower trading due to reduced integration with EU countries which is likely to cost the UK economy far more than is gained from lower contributions to the EU budget. In addition, the UK will no longer benefit from this regulatory capacity which has been used by the EU to negotiate access by EU firms to third country markets (Moloney 7). Moreover, the economic consequences of leaving the EU will depend on what policies the UK adopts following Brexit. This paper analyzes the social and economic effects of Britain withdrawing from the European Union.

The European Union (EU) is the UK’s largest trade partner. The UK does about half of its trading activities with member states of the European Union. This is because member states of the EU experience reduced trading tariffs when they trade amongst one another. This makes goods and services cheaper for UK consumers and allows UK businesses to export more (Dhingra et al 3). The decision by the UK to leave the European Union will lead to a decline in trading activities between Britain and member states of the EU because of higher tariff and non-tariff barriers to trade. In addition, the UK would benefit less from future market integration within the EU (Dhingra et al 3). The financial services industry represents about 7 percent of the United Kingdom’s gross domestic product (GDP) and is a vital cog to the economy of UK.  Furthermore, news reports in the immediate aftermath of the referendum result to withdraw UK from the EU coincided with a sharp drop in banking stocks; the overtures being made to attract UK financial business away from the City to other EU centres; and plans by leading financial institutions to move some operations away from the City (Moloney 2). Conversely, the decision by Britain to pull out of the European Union will reduce the overall stability of the banking sector since any crisis may be met with differing responses from UK and EU regulators. Moreover, the decision to implement Brexit will have adverse effects on banking professionals in the sense that their movement will be restricted since there will be no more free movement between the European Union states and the UK.

Global regulators are responsible for setting numerous financial and banking rules. According to Ashurst banking team (3), “Brexit will affect the legal environment in which banks deal with each other, their clients and their counterparties, for example in terms of the recognition of judgments and complex cross-border insolvency matters.” The decision by the UK to pull out from EU will challenge London’s role as the venue of choice for global firms to conduct their European business. International banks will opt to conduct business with countries inside the EU which will mean a shift of banking operations to another location. The drop in the cost of travel may help Europe’s tourism especially with those tourists who earn in US dollars (Tarlow 9). The decline in the value of the British pound sterling and the Euro combined with lower fuel costs may increase the number of foreign visitors (Tarlow 9).

The motor manufacturing industry is a successful part of the United Kingdom and it has already become one of the largest car producers in the world (Zhang 3). By leaving the European Union, the cost of importing cars will become more expensive, and since the UK motor manufacturing needs a great proportion of imported components and assembled vehicles, there will be a large adverse effect on the economy (Zhang 3). In order to cope, the motor sector will be forced to hike its prices for customers. This will undermine the competitive trend of the motor in Britain.

In conclusion, the decision to withdraw from the European Union poses a huge uncertainty to the economy of UK. Even though there are options like entering the Single market like countries such as Switzerland and Norway, doing so will make the UK less attractive for foreign investment whilst also making the motor industry more expensive because of the cost of importing and exporting.

Works Cited

Dhingra, Swati, et al. “The consequences of Brexit for UK trade and living standards.” (2016). Retrieved from http://eprints.lse.ac.uk/66144/1/__lse.ac.uk_storage_LIBRARY_Secondary_libfile_shared_repository_Content_LSE%20BrexitVote%20blog_brexit02.pdf

Tarlow, Peter. “Brexit and its impact on tourism.” (2016). Retrieved from http://repotur.yvera.gob.ar/bitstream/handle/123456789/7003/03_BrexitTarlow.pdf?sequence=1&isAllowed=y

Moloney, Niamh. “Financial services, the EU, and Brexit: an uncertain future for the city” German Law Journal 17 (2017): 75-82. Retrieved from http://eprints.lse.ac.uk/67292/1/Moloney_Financial_Services_the_EU_and_Brexit.pdf

Zhang, Aimin, and Ran An.  “The Impact of Brexit on Motor industry in the UK.”(2015). Retrieved from http://www.tud.ttu.ee/web/Xiaosong.Zheng/PDF/P115.pdf

Ashurst Banking Team, Brexit: the Potential Impact on the UK’s Banking Industry. (2016). Retrieved from www.ashurst.com/de-de/news-and-insights/insights/brexit-potential-impact-on-the-uk-banking-industry/