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At present, it seems nobody can say for sure what would be the impact of Brexit on UK economy. The issue has always elicited mixed opinions. Prior to June 23 referendum, many economic and market experts had predicted an immediate and significant impact on British economy. But the economy defied forecast and grew by 6% between July and September, faster than previous
estimates.
There is still concern that leaving the European Union will have adverse effect on economy over the coming years. It won’t be disastrous, but there is a consensus among economists for a prolonged effect on the overall performance on market to an extent.
There is a possibility of fallout on trade, investment and will affect hiring, inflation and demand.
Given UK Prime Minster Theresa May’s stand for hard Brexit, which will cut UK from the EU single market for greater border control, it is likely that British economy will take a hit. Among the most pessimistic forecast is a loss of as much as 9.5 percent of income.
The kind of deal May wants will likely result in some degree of trade destruction. Trade, openness, and migration are the big issues. And if migration is reduced, it may result in weaker growth. The UK agriculture sector will suffer the most if May doesn’t reach a deal that guarantees access to European workers. Without a regular workforce food will rot in the fields and Britain will lose the ability to produce and process its own food. As many as 22,000 workers were
employed in British agriculture in 2015, which constitutes 20% of industry’s workforce.
In this backdrop, farmers are lobbying for a deal that allows unrestricted access to European market and its laborers. The UK government is committed to guaranteeing rights to all EU workers in Britain, as long as the benefits are extended to British workers in the bloc. But it contradicts the stand on immigration, the key factor behind the vote to leave the EU.
On the other hand, UK buys billions of pounds more food and drink from the EU than vice versa. Also about 60 percent of UK’s farm exports go to the EU. So, May can use agriculture as a bargaining chip.
May hard Brexit will result in higher economic costs for UK. She must strike a balance and seek an all encompassing free-trade agreement. The Leave vote is not going to change the fact that the bloc is UK’s most important trading partner. And it will not change even after Britain quits the European Union
Although UK economy grew more than previously estimated in the final three months of 2016, it can flicker out soon. The consumer spending has kept the economy afloat since the Brexit vote. But signs of strain are now appearing as accelerating inflation squeezes household incomes. UK posted slowest retail sales growth in more than three years in January. Business investment dropped 1 percent.
Despite prime minster May’s lofty vision for a ‘global Britain,’ a deal that hurts services would be a blow to economy. Most European leaders insist the single market’s free movement of goods and services is indivisible from the free movement of people. German Chancellor Angela Merkel has already indicated she will take a tough stance in the talks. How it all plays out will be clear once May presses the Brexit button.