The Brexit (Britain’s exit) has been a long melodrama for Britain, and it all started with a referendum held on 23 June, 2016, to decide whether the United Kingdom (UK) should leave the European Union (EU) or remain with it. The turnout of the referendum was 72%. Those, who voted to leave won by 52% compared to those who were in favour of staying with the EU who lost by a slight 48%. Overall 30 million people participated in the referendum, out of which 17.4 million people voted for Brexit. The formal process of leaving the EU and initiation of Brexit was due on 29 March, 2019 – two years after the then Prime Minister Theresa May triggered Article 50. But since then the Brexit date has been delayed twice. Even in 2018 a binding withdrawal agreement was fixed between the UK and EU; however, British MPs have rejected it three times since. One of the main reasons of the rejection was the ‘backstop’ at the Irish border.
72%. Those, who voted to leave won by 52% compared to those who were in favour of staying with the EU who lost by a slight 48%. Overall 30 million people participated in the referendum, out of which 17.4 million people voted for Brexit.
If the Brexit deal happens there is a fear that it will threaten the existence of the UK because the backstop could become permanent. The Irish Republic and Northern Ireland are the only land borders left to bridge the gap between the UK and the EU. A lot of the trade activities are carried out from this piece of territory, so after Brexit it will become significantly important to have a check and balance on border and trade activities between the UK and EU. There are apprehensions, that the check points could become an easy target if the old memories of Northern Ireland strike back. In order to avoid the tensions, the withdrawal agreement proposed the backstop that will prevent any kind of conflict until a deal has been reached by keeping the border open like before. After a no-deal Brexit, as proposed by the EU; the entire Britain would leave the custom union of the EU, but Ireland being part of the EU will be under the influence of EU customs. The drawback of the backstop for the UK would be that it will prevent the UK from carrying its own trade and goods agreements with trade partners coming from this border, resulting in a further economic recession in the UK, especially if the backstop becomes a permanent feature.
Owing to the complexity of the EU economy, there is little clarity as to what the real outcomes of Brexit will be; amid this sketchy scenario both predictions and rumors are prevailing in the international community about the economic impact of a no-deal Brexit. Some fringe economists are of the view that a no-deal Brexit would be a boon for the UK economy. However, none of the reliable analysis seconds this idea, rather there is predominant obscurity.
The effects of Brexit’s uncertainty are already biting into the UK’s economy. The services sector is stagnated and the manufacturing activity is suffering from steepest retrenchment in years. The performance of the construction industry has fallen to the lowest level in almost a decade. However, outside London and south-east England prices of houses are rising at continuously. In total, there has been a reduction in the private sector’s productivity in national economy during the second quarter of the year, for the first time ever in British history, since the Eurozone crisis in 2012.
Rather, their spending on basic necessities and utilities has been decreased by 3% out of ten. In terms of currency, people spare just 1% out of their salary into savings as compared to pre-Brexit referendum, which was around 4%.
One of the important challenges of the no-deal Brexit is that the purchasing power of the consumers in the UK has been tremendously increased. Instead of cutting back, the consumers are spending large amounts on luxuries. Rather, their spending on basic necessities and utilities has been decreased by 3% out of ten. In terms of currency, people spare just 1% out of their salary into savings as compared to pre-Brexit referendum, which was around 4%. According to FT, the levels of personal debt increased since 2016 due to student and car loans, but credit card borrowing is still growing at an annual rate of about 6%, according to the Bank of England figures.
The uncertainty in the UK policies and the rapidly increasing likelihood of a no-deal Brexit is destroying the British economy. It is dropping the value of its currency, increasing the inflation, and chances of economic recession and financial stress is high. The graph below shows that the gross domestic product in UK from 2014 to 2019 has been decreased from 2.8% to 1.2% which is one of the reasons for the financial stress.
Graph1. Gross Domestic Product of UK (2014-2019).
|Year||GDP % Q-on-Q4 Growth Rate CVM SA %|
Gross Domestic Product of UK (2014-2019). (Office for National Statistics, 2019)
Owing to their lack of confidence the entrepreneurs are hesitant to invest in the UK which is further decreasing the value of the Pound Sterling. According to the Bank of England’s Governor Mark Carney, ‘unemployment would double to 7%, and inflation would go up more than double to 5.5%.’ The pictures below show the difference between the Bank of England’s withdrawal scenario and the one proposed by Mark Carney.
Although the graph proposed by Carney is apparently a bit relaxed compared to the former however, still it is worrisome in terms of double the rate of inflation and the continuously decreasing GDP as shown in the graph below.
Surely, we cannot predict exactly what is going to happen in the past-Brexit future. Current the UK Prime Minister Boris Johnson is affirmed on his stance that Britain will exit from the EU on coming 31st of October, 2019 with or even without a deal. Whilst, the opposition members of the Parliament voted for a bill, so that it could force Johnson to request a Brexit delay until January 31, 2020. Recently on September 25, 2019 the UK Supreme Court has passed the bill and requires the Prime Minister to request another delay by October 2019. Which leaves a big question mark, whether there is any possibility that the no-deal Brexit would still happen?
In a nutshell, certainly the financial system of the UK won’t collapse entirely. Nor will the stock market crash, neither will the interest rates touch the sky. However, the pharmaceuticals, chemicals, food, agriculture, households, services are the industries that will be most affected due to delays at essential ports – maybe for an indefinite time period.
Qurat ul Ain Hafeez is the Research Coordinator at the Centre for Strategic and Contemporary Research. She has done her M.Phil in International Relations from the Quaid-i-Azam University, Islamabad.