Lal Bahadur Shastri Girls College of Management – LBSGCM

Lal Bahadur Shastri Girls College of Management




Brexit  has become a buzz word since June 23, 2016, when UK announced its probable withdrawal from the unified common market i.e the EU. The word brexit is a combination of two words Britain and Exit. It is a way of saying that Britain is leaving the European Union. To understand Brexit in a better way we need to know about the EU first. EU is an association of 28 European countries which was formed to promote social, political and economic harmony among them. It is a unique formation of Economic and Political partnership among the nations of western Europe. After facing the aftermath of Second World War II, the economies of western Europe joined hands together to abstain from war and to promote peace and harmony in Europe. With the same intention, the European Coal and Steel Community (ECSC)  was formed in 1951. Later, the European Economic Community (EEC) came into being in 1958 with its six founding members namely France, Germany,Italy, Belgium, Netherlands and Luxembourg. The UK joined EEC in 1973 along with two new members Denmark and Ireland. The EEC was later renamed as European Union on November 1, 1993. Over the years EU transformed itself into an affluent and powerful trade bloc which alone contributes 16.53 % to world GDP. At present there are 28 member countries in the EU including UK. It has its own parliament, economic & regulatory framwork and a common currency which is used by 19 of its members. UK remained a member of the EU for 43 years until June 23, 2016 before announcing its intention to leave the union.On 29 June, 2017, the newly elected PM Theresa May  has announced  a national referendum in which all the British citizens of voting age took part and casted their votes in favour of UK’s withdrawal from the EU. 51.9% of the Britishers voted in favour of UK to exit from the EU. However, the referendum does not mean that Brexit has occured and UK has already exited the EU. Both EU and UK are negotiating their terms of split and have agreed upon a transition period of 21 months after 29 March 2019. Brexit has created an atmosphere of uncertainity and anticipation across the globe.

Brexit is such a big geopolitical event that its repercussions can be felt across the globe. Economists and industry experts are of the view that Brexit might create severe implications on UK’s economy. Though nothing can be stated with certainity before the final deal between the EU and UK. Through this article a brief sketch of Brexit and its probable impact on UK economy has been presented. The probable impact of Brexit on UK’s economy could be observed through the changes in pattern of trade, investment linkages and immigration.

Impact on Trade: EU is the world’s largest market and UK is its biggest partner after the USA. The share of UK in EU’s total exports is 44 % and that of import is 53%. If Brexit happens to be a reality EU might feel a jerk on its economy too. But economists have predicted that the impact of Brexit would be much substantial on UK than on EU as UK imports more than exporting to the EU. According to statistics, UK will experience a loss of at least £4.5 billion a year,if it leaves the EU without negotiating a new trade deal with  EU. In addition, the trade cost between EU and UK is far less as compared to UK’s trade cost with another non-EU partner countries. But after losing the access to the common market, the trade cost between them would increase manyfold due to tariff and non tariff barriers exercised by EU against non-EU member countries.

Impact on Investment: Brexit will not only affect trade but also investment ties between the EU and UK. UK has been a major recipient of Foreign Direct Investment (FDI) from the EU member countries so far. It is expected that after Brexit the FDI between these two countries might fall significantly. Reason being, post leaving the single market, UK will no longer be an attractive export platform for multinational corporations, due to increased cost in terms of tariff and non tariff barriers exercised by the EU for non-EU member countries. Moreover, MNCs have complex supply chains and many other coordination costs between their headquarters and local branches so it would be difficult for them to manage cross border operations at a very high cost. It indicates that Brexit would leave a negative impact on FDI into UK.

Impact on Immigration: Immigration has been a key issue in Brexit discussion.The propogators of the leave campaign strongly believd that the migration of EU nationals into the UK have hurt their jobs, wages and standards of living. In the past 20 years immigration of EU and other non EU countries into UK has increased manyfolds. The total number of immigrants from other EU countries into UK has increased from 0.9 million in 1995 to 3.3 million in 2015. These EU nationals usually come to UK either for work related reasons or to find jobs in UK corporations. Naturally this increases the total number of work population but it shuld not be considered as economically harmful to the people of UK. However this has no significant bearing on unemployment rate in UK. The outcome of many research studies has clearly revealed that immigration from EU or non-EU national didn’t create any sort of imbalance in UK government’s welfare schemes nor unemployment in the UK. Portes (2016) has devoted his study on effect of EU immigration on jobs and wages in UK and concluded that the large increase in immigration in the UK has not significantly harmed the job and wage prospects of UK born workers. So, if Brexit occurs it would impact EU more as migration into UK would be subject to new immigration system.

To make an exact forecast on the economic consequences of Brexit is a herculean task as all predictions are subject to a degree of uncertainity. But in the light of above assessment we can conclude that UK would suffer more if it seperates from the most affluent trade bloc of the world.


Dr. Afeefa Fatima
(Dr. Afeefa Fatima is a faculty of commerce in Lal Bahadur Shastri Group of Institutions. She has more than 10 years experience in teaching and research work. She has actively particiapted in referesher courses, workshops and national & international conferences organized by various reputed institutions across India. Her areas of interest are Economics, International Business, International relations and Operations Research.)

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