Yifan Shen examines recent developments on the UK economy, exploring two major impacts including the upcoming Brexit result and the US presidency.
Britain has seen some of the greatest developments of ideas and products over the past few centuries. This growth could be because of good leadership, optimal environment, and sovereign power, compared to many other countries. However the current outlook for the UK economy seems bleak, and the future is as undetermined as ever and this can be outlined by the following reasons: Brexit and Biden.
Even though Brexit negotiations have been in discussion for over four years now, the transition period is finally reaching the end of what will determine the UK’s future economy and culture next January. It is assumed that some form of agreement would be reached by this date, but the negative impacts of this delay will damage the UK economy. Firstly, a no-deal Brexit would mean a harsh list of tariffs and quotas that the UK would have to abide by, ranging from 10% for carmakers to 34.5% for dairy products. These regulations would hit the UK particularly hard as the EU is one of the UK’s main trading partners: the country exports 46% of all goods and services to the EU. Based on economic theory, imposing strict tariffs would mean less demand for goods and thus lower economic returns due to the increase in costs of production. Additionally, even in the case of a Brexit deal, future negotiations on business, economy and finance would see increasing bureaucracy. Another factor to consider would be the crackdown on free movement between the EU countries. For example, increased security at custom checks that could result in long queues of up to 7,000 vehicles every two days that pass from Kent to Calais. Not only would a deal incur large economic costs as well as time and effort, but the relationship between the UK and the EU may be strained in the process. However, whether a deal or no-deal is reached, the UK has already been negatively impacted by the economic effects of Brexit, with GDP expecting to dip by 1% in merely the first quarter of 2021 and a long-term growth stunt of 2-8%.
Another factor to be considered would be the new President-elect Joe Biden’s trade and political decisions which may affect the British economy. The Biden administration’s decisions on trade agreements and foreign policy could lead to a turnaround of the UK’s fate. Trade deals between the UK and US depend on talks with the EU who have to protect the Republic of Ireland’s interests, as Ireland is still a member. Therefore, it is anticipated that Joe Biden will apply pressure on UK Prime Minister Boris Johnson so that a hard-border with Ireland might not be implemented, as Brexit affects border controls between these two countries. These geopolitical factors are particularly important for Ireland’s economy because Britain is a major trading partner for them.
On top of that, many Irish exporters who sell goods to the European mainland send these through Britain first, meaning that if talks between the borders fail, then Irish exports could face an imposition of heavy WTO tariffs into Britain which would cost significantly economically. Therefore, if Biden were to intervene, the negative economic downturn for Ireland could be less serious, although uncertainty is at an all-time high. Furthermore, since the President-elect strongly values the relationship between the UK and US, having a free trade agreement which would not be disrupted by Brexit would be the most ideal situation. For example, in 2018, both countries traded a total of USD 262.3 billion between each other, which is likely to decrease throughout the transition period and in the long-term. In particular, with the increasing volatility seen in global equities this year, markets might experience even greater friction, if the UK were to strictly confirm a no-deal Brexit. For the UK, the imposition of Biden’s sway over power dynamics could still cause a soft deal formed from Brexit. Therefore, the UK’s economy could see a turn for the better.
Overall, the UK has arguably gone through many economic-political turmoils throughout the last couple of years, mainly due to the uncertainty of Brexit and the country’s relationship with other members of the EU. However it is not just European countries that face repercussions from the agreements, as the US would also face a disadvantage from both trade deals and future negotiations, if the UK faces a no-deal or hard Brexit outcome. However, it is expected that the UK economy could face a turn around and see growth in certain industries and areas of the economy that benefit more from Brexit in the future. This growth can be most prominently seen within the UK retail industry, as the pound depreciates against the dollar, potentially increasing consumption levels from foreign customers higher than ever.
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