This blog summarizes our new working paper, which reviews academic studies on how the Brexit vote impacted the UK economy prior to the country’s exit from the EU.
The UK’s economic relationship with the EU did not alter until January 2021, when the Trade and Cooperation Agreement (TCA) went into force, despite the UK’s vote to leave the EU in June 2016. However, prior to 2021, Brexit had an impact on economic behavior because it shifted expectations about future economic policy.
The Leave decision increased the likelihood of future trade, investment, and migration barriers between the UK and the EU. It also created uncertainty about changes in UK and EU economic policies, putting decision-makers at greater risk.
What was the impact of this adjustment in expectations on economic outcomes? According to research, even before the UK left the EU, the Leave vote had a significant negative impact on the economy. Based on the facts, we estimate that the UK economy was between 2% to 3% smaller at the end of 2019 than it would have been if the UK had opted to remain in the EU. This reduction translates to a yearly GDP loss of 650 to 1000 per person.
What evidence backs up this conclusion? The economic effects of the referendum first manifested themselves in financial markets: on the night of the vote, the pound witnessed the largest single-day drop in any of the world’s four main currencies since floating exchange rates were adopted in the early 1970s. And the downturn lasted for a long time. Sterling has fluctuated roughly 10% below its pre-referendum value since the referendum.
As shown in the graph below, the collapse in the value of the pound made UK households poorer by raising the cost of imports, resulting in higher inflation and weaker real wage growth. Consumer prices are expected to rise by 2.9 percent as a result of the Brexit vote, boosting the cost of living for the average household by 870 per year.
Will the economy be affected by Brexit?
During and after the referendum on the United Kingdom’s membership in the European Union, the economic consequences of Brexit were a hot topic of discussion. Economists agree that Brexit will most likely diminish the UK’s real per-capita income.
What is the impact of Brexit on the EU?
Between the first of January 2019 and the first of January 2020, the EU’s net population decreased by 13%. According to Eurostat data, there would have been a net rise over the same time period.
What Causes Inflation in the UK?
The key cause for this is the growing global energy price. Gas prices have risen dramatically in the last year, but the Resolution Foundation warns that the Ukraine crisis is exacerbating the problem.
What effect does increasing interest rates have on inflation?
The rationale for raising rates is straightforward: higher borrowing costs can reduce inflation by reducing demand. When borrowing becomes more expensive, fewer people can afford homes and cars, and fewer firms can expand or purchase new machinery. Spending is decreasing (a trend we’re currently seeing). Companies require fewer employees when there is less activity. Because there is less need for labor, pay growth is slower, which further cools demand. Higher interest rates basically suffocate the economy.
Tariffs for British exports
Fortunately, the UK and the EU reached an agreement on post-Brexit trade, allowing UK businesses to continue trading tariff-free. The Trade and Cooperation Agreement (TCA) of April 2021 contains the agreement between the UK and the EU.
Imported or exported UK goods, on the other hand, must meet strict TCA criteria in order to qualify. Businesses must show that their products are from the United Kingdom or the European Union. To be termed British or European, agricultural products must have been cultivated on British or European soil. They must have been’significantly modified’ if they are from outside.
Products that do not comply with the TCA’s rules may be subject to the UK’s global tariff or common customs duty. Even if they meet the requirements, Europeans may face unexpected customs duties when purchasing goods from the UK.
It can be more work than it’s worth to claim preferential tariff rates, therefore some businesses simply pay the customs fee.
Disruption in supply chain
Many businesses stocked up on items before Brexit in order to avoid tariffs on EU imports. It is critical to provide openness about any levies or tariffs that UK and EU businesses may pay in order to maintain good relations.
There are also logistical issues with the supply chain, and pandemic delays haven’t helped matters.
CE Marking Changes
“CE marking is an administrative marking by which a producer or importer certifies that a product supplied inside the European Economic Area complies with European health, safety, and environmental protection regulations.”
Businesses must now consider the new UKCA marking, rather than relying solely on CE labeling.
The CE label is still valid in the EU (thus if UK companies sell there, CE is still valid), however products sold in the UK can no longer use the CE marking and must instead use the UKCA marking. The update is being implemented in stages.
Decrease in EU workers
With the loss of free movement between the UK and the EU, Brexit has been difficult for the workforce. Businesses will no longer be able to rely on low-cost labor, and you may need to increase your investments in apprenticeships and existing personnel.
Non-UK citizens arriving in the UK after January 1, 2021 will also require a work visa. In order to continue to hire non-UK citizens, your company will need to seek to become an approved employer sponsor. Existing EU, EEU, or Swiss employees must apply for settled or pre-settled status in order to continue working in the UK.
Confidence in the UK
The FTSE 100 stock index has been erratic since Brexit, and the Sterling rate hasn’t recovered to pre-Brexit levels. For the foreseeable future, business confidence in the United Kingdom will likely remain fragile and unpredictable.
Businesses wishing to mitigate the negative consequences of Brexit can take advantage of a variety of legal services.
Our thoughts on the impact of Brexit on Businesses
We deal with international paperwork and enterprises on a daily basis as notaries. Our job is to notarize and certify papers so they can be utilized internationally, as well as assist clients in legalizing them through apostille or embassies.
Are we getting more businesses wanting to relocate out of the UK?
“There aren’t many enterprises migrating, but there appear to be a lot of businesses forming subsidiaries in EU countries.”
Is there now more/less paperwork that businesses need notarising?
“Probably a little more on the whole.” While notarization was previously optional for various documents/processes, some EU countries are now requiring that documents be notarized and/or legalized before being forwarded. Similarly, many documents that previously did not require apostille/legalization now do so before being distributed to the end user.”
Have costs for notarisation/apostille/legalisation changed since Brexit?
“The fees for each document are the same. Because the volume of documents has increased, clients are experiencing greater total expenditures.”
How has Brexit affected MSC Notaries from a business perspective?
“It hasn’t had much of an impact from a practical standpoint.” However, we’re noticing a little increase in the number of documents that need to be notarized and legalized.”
Why is Brexit beneficial to the United Kingdom?
There are numerous advantages to leaving the EU: control of our democracy, borders, and waters; control of our own money, which helps us to level the playing field across the country; the ability to regulate in a more fair and agile manner that supports our great British firms; and benefits for those who reinvest their earnings.
Can French nationals work in the United Kingdom after Brexit?
Yes, EU people can work in the United Kingdom after Brexit, but they must apply through the Skilled Worker Visa or EU Settlement Scheme (EUSS).
What impact will Brexit have on European businesses?
Businesses with continental European suppliers or consumers will be harmed, while commerce with non-EU nations will be hampered by the loss of access to the EU’s present free trade agreements as well as any customs delays.
RELATED: Inflation: Gas prices will get even higher
Inflation is defined as a rise in the price of goods and services in an economy over time. When there is too much money chasing too few products, inflation occurs. After the dot-com bubble burst in the early 2000s, the Federal Reserve kept interest rates low to try to boost the economy. More people borrowed money and spent it on products and services as a result of this. Prices will rise when there is a greater demand for goods and services than what is available, as businesses try to earn a profit. Increases in the cost of manufacturing, such as rising fuel prices or labor, can also produce inflation.
There are various reasons why inflation may occur in 2022. The first reason is that since Russia’s invasion of Ukraine, oil prices have risen dramatically. As a result, petrol and other transportation costs have increased. Furthermore, in order to stimulate the economy, the Fed has kept interest rates low. As a result, more people are borrowing and spending money, contributing to inflation. Finally, wages have been increasing in recent years, putting upward pressure on pricing.