Effect of Brexit on UK-EU economic relations

The process of the United Kingdom’s (UK’s) decision to withdraw from the European Union (EU) began on 23rd June, 2016 when the United Kingdom voted in a referendum to leave the Union. About 17.4 million people voted to opt out.

The results indicated 52% opted to leave while 48% voted to remain in the European Union. The United Kingdom’s membership to the European Union ended on 31st January, 2020British exit refers to the United Kingdom’s decision to leave the European Union, and is commonly called Brexit.

The original deadline for Brexit was 29th March, 2019. This deadline was delayed twice following British Parliament’s rejection of the negotiated deal presented by former Prime Minister Theresa May.

Since the revised deal was not passed into law, Prime Minister Boris Johnson, the successor to Prime Minister May needed a new Brexit extension. Brexit was passed into law following fresh elections on 12th December, 2019; and which resulted in a Conservative Majority of eighty (80).

The outcome of the above elections culminated in the new deadline. The UK joined the EU in 1973 when it was known as the European Economic Community (EEC).

The Union’s membership comprises twenty-eight (28) countries. The UK is the first member state to leave the Union. Connoisseurs of the Brexit deal believe the UK’s decision could have monumental effects on future generations.

Economic effect of brexit

Varying opinions have been expressed on the economic ramifications of Brexit to the United Kingdom and the European Union. Some economic experts believe the UK’s withdrawal would result in social and economic changes to the EU as well as political and administrative shifts in the long run.

The EU allows free trade among member states. That is, it allows free movement of goods and services among member states without restrictions and additional charges; it allows free movement of people; and allows individuals to live and work in the member state they choose.

Although the United Kingdom has formally exited the European Union, a lot of talks and negotiations are expected to continue in the coming months. Some economic “pundits” argue the United Kingdom would be at a clear disadvantage when trying to renegotiate her position in the EU following her decision to leave.

Conversely, proponents of the new trade agreement believe it would allow the UK to negotiate her own trade deals with other countries; and this would not have been possible under the Backstop agreement.

The UK’s failure to reach an agreement with the EU in time would imply the former would trade with no deal in place; it means UK’s goods transported to other EU countries would attract taxes or tariffs and other trade barriers.

Brexit implies a review of UK-EU relationship in the areas of licensing and regulation of medicines; supplies of electricity and gas; access to fishing waters; aviation standards and safety; and law enforcement as well as data sharing and security.

Brexit implies the UK may not be able to influence EU legislation. The United Kingdom has a net trade deficit with the European Union; and a net trade surplus in services of £10.3 billion.

The former is expected to pay the latter an estimated amount of £30 billion. The services sector accounts for about 80% of all the economic activities in the UK.

Thus, the European Union would have “far less incentive to conclude a liberal agreement on services than on goods, which would severely hurt the UK economy.”

The raging debate remains whether or not the UK would be better off after leaving the EU. A careful analysis of the relationship between the UK and EU reveals the UK is more dependent on the EU than the latter is dependent on the former.

For instance, in 2018, the UK recorded the fifth largest nominal gross domestic product (GDP) in the world, and the second largest in the EU.

This significant economic feat is attributed largely to the UK’s membership to the EU, which created unique opportunities for unfettered access to the Single Market.

Further, the twenty-seven (27) other member states’ total exports to the UK was estimated at 3.1% of GDP while total exports to the EU constituted about 12.6% of UK’s GDP. About 60% of total UK trade is covered by EU membership and the preferential access granted to fifty-three (53) markets outside the EU. The EU is the world’s single largest marketit has over 500 million peopleand trade volume of about US$19 trillion.

Some economic analysts have posited should the UK economy be fully liberalised, including immigration, the estimated GDP in the case of a “Leave” vote would vary between income gain of 1.6% and income loss of 9.5% by 2030. Relative to GDP, most analysts have predicted an income loss between 2% and 3%.

They believe the UK’s withdrawal from the EU would affect her future economic growth rates unless steps are taken to ensure substantial increase in the immigration rate through economies outside the European Union.

Brexit could lead to unfavourable trade-offs between immigration and economic well-being of UK citizens. This may compel the UK to consider re-opening of her economic markets in ways that may appear “counter intuitive to the narrative of those who wish to leave the” European Union.

The analysts affirmed the alternatives presented by the UK do not compare with the UK’s membership to the European Union while the economic and political costs associated with Brexit outweigh the UK’s decision to remain in the Union.

Other statistics suggest only about 8% of firms domiciled in the United Kingdom sell directly into the European Union’s Single Market; and this represents about 12% of UK’s GDP. The foregoing implies a large number (about 92%) of UK firms do not sell directly in the Single Market.

This creates opportunities for value-additions and supply chains in the selling process. It further implies the UK’s reliance on the EU’s single market is somewhat over-exaggerated and less significant compared with her trading activities with other economies outside the Union.

On the issue of sovereignty, Mr. Petros Fassoulas, Secretary-General of the European Movement International, believes the European Union serves as a significant source of leverage for the United Kingdom in the world.

The former allows the latter to leverage the world’s largest single market to secure the latter’s economic interests; and to shape policies towards the former’s Southern and Eastern neighbourhoods; enhance the latter’s ability to influence global policies on climate change; and to provide the latter with the requisite “backing” in negotiations with other advanced economies such as the United States.

Mr. Fassoulas further believes the United Kingdom’s decision to leave the European Union would “accelerate and make more permanent the UK’s diminished influence in the global order, [compelling the UK] to fall back on secondary relationships in order to exert influence.”

Stated differently, the UK could witness significant reduction in her global standing; and in her ability to influence international events that affect her the most.

Mr. Fassoulas concluded, “leaving the [European Union would] be a historical mistake of paramount proportions, one whose effects will be felt sharply in the short-term and have a lasting impact on the UK and EU for many years to come.

A British exit from the EU will only have losers.” Another school-of-thought holds Brexit could negatively impact Nissan’s sustainable investment in the UK’s auto industry. However, the current Japanese Ambassador to the UK has affirmed the commitment of Honda and other Japanese car manufacturing companies to increase their investment in research and development (R&D) in the UK.

The foregoing suggests Brexit would negatively affect the UK’s ability to assume influential roles in the European and global economies; and to assure her sustainable development and growth.

Nonetheless, Prime Minister Johnson and his charges think otherwise; they believe their “carefully thought-through analysis” on Brexit considered the foregoing factors and therefore, the UK is in a pool position to advance her economic pursuits at both the European and global levels.


Comparatively, the rate of economic development and growth in the United States is faster than the rates witnessed in Western Europe, including the UK.

To bridge this “yawning” economic growth gap, more investment is required in the UK and other Western European economies.

Brexit implies the UK’s withdrawal from the political structures of the EU.

Therefore, it is imperative for the people to decipher collectively what is best for the UK, so she could occupy her enviable role in the global economy.

Repositioning of the UK after Brexit in the ever-changing, dynamic, and growing global environment is pivotal to the realisation of sustainable economic growth targets.

Though politics has a major role to play, key economic measures such as supply, fiscal, monetary, and financial policies are interwoven and critical to the future success of Brexit.

Author: Ebenezer M. Ashley (PhD)

Fellow Chartered Economist & CEO of EBEN Consultancy

Email: ebenezer.ashley@gmail.com

Website: www.ebenezerashley.org

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