Let’s travel back to the past, what is actually Brexit is and why it’s catching the whole news at once. United Kingdom joining EEC (European economic community) in 1973 as a  predecessor to the European Union brings a lot of spilt. The Guardian wrote in an editorial on January 1, 1973 “ The journey into Europe will be bumpy and discordant.

A Quick Glimpse Into the Past Events Which Led to Brexit

During the WW1 and WW2, the European countries were also going through some conflicts in between them, slowly those conflicts turned out to be bloody wars. Simply, to rescue the neighbouring countries of Europe, EU comes into power with its founding members Belgium, France, Germany, Italy, Luxembourg and the Netherlands. European Union was originally the European Economic Community (EEC) created by the treaty of Paris in 1957. The United Kingdom joined in 1973. The main purpose of the European Union was to form a single European political entity and maintain a peaceful balance between all member countries with four basic freedoms regarding the transportation of goods, trade between member countries, common currency and free movement of people. In simpler terms, the EU consists of a group of European countries that acts as a single economic unit in the world economy.  EU provides a peaceful balance to the countries and help to make a stronger economy of each country and offers opportunities to rely on each other. However, the EU also strictly maintains some rules and regulation on these member countries.

When it comes to the UK leaving EU, there’s a lot of news going on. To cover the huge topic in a go, the understanding of UK and EU is a long but bumpy journey and is much important. The United Kingdom joined the EU for the better economic and peaceful life of the citizen. After two years of UK joining EU brings a debate around into two parties, one section of the UK were not really happy with the UK’s relationship with the EU.  According to that section of society, the EU has been a toxic issue in British politics. They always fear that the EU may hamper the sovereignty of the UK and also can bring fundamental conflict. Britain’s future with the EU had no luck, that was strongly believed by a larger section of society, also many citizens and politician were not happy with the rules and regulation imposed by the EU. Although the other half who were not very happy with the freedom that comes other Britain’s exit of EU, the youth of Britain is torn between their idea of what Britain could be and the reality of what it is. So to make a decision and end the debate and protest between the two parties of The United Kingdom, a referendum took place in 2016. On 23 June 2016, British citizens were called to cast their vote on the subject of the UK’s membership in the European Union that had a remarkable turnout of 72 per cent of the total electoral voted YES to the Brexit.

Xmas with Brexit Trade Deal

For the British and European Parliaments to ratify a trade agreement in an orderly fashion before the Brexit transition period expires on New Year’s Eve. The UK insists that it should trade with the bloc with as few restraints as possible. The EU demands that Britain stick to EU rules to ensure fair competition.

After the long discussions, talks and conference call about 90 minutes between the prime minister Boris Johnson and the president Ursula von der Leyen, with the spirit of Christmas 2020, EU and UK comes to finalize their situation with ‘a lose-lose situation’ the deal is about signed in December 31st 2020.  The  EU’S chief negotiator Michel Barnier express regret saying there is no winner in Brexit. Ursula has said, “parting is always bitter and sweet, after successful negotiation journey throughout Brexit, the deal has been made in the Xmas eve, I feel satisfaction and relief.” A bittersweet moment has emerged in the air of the UK. Although the youth are not happy with the whole idea of Brexit but the deal has been made which is better then no deal, if the deal did not happen the situation in the UK will be worst. The deal prevented some worst situation for the United Kingdom. So after this long time with lots of news, protest and discussion, along with the deal made, the UK has become a completely unchartered territory. Britain is free from the EU, and the European Union has lost a member from its union.  A lot of compromise from both sides made possible the Brexit trade deal.

The deal that has made between the UK and EU stated that European boat will still drop nets in British water, giving up only 25% of their catch quotas as fishing becomes the most important part of the economy of both also the Brexit trade deal.  Due to the Brexit deal, the EU is going to reduce quota as EU vessels can get in and the UK can go back. No tariffs or quotas on the movement of goods tariff-free or free trade as there are non-tariff barriers lots of from filling. So there will be no tariffs and quotas but some bureaucratic barriers to trade. There’s quite more stuff including the UK going to stay in certain EU’s programs, free movements of person will be removed along with goods and services, also the Brexit deal does not provide financial equivalence to UK’s economy. After all this there will be a partnership council is going to take over.

After the Brexit deal the leaders of both UK and EU on the positive side of maintaining the strong relationship between the both UK and EU, also looking forward to more stability and certainty towards a new beginning with a new security and trade deal post Brexit, which runs to 2,000 pages. 

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Recent Economic Troubles

Britain experienced a 20.4% month-on-month contraction, with a further 5.8% drop in March, which left the economy in tatters, eroding eighteen years of growth, in a mere two months. The vital services sector, which makes up the bulk of the English economy, was 24.2% down as compared to the pre-pandemic days. The manufacturing sector, which was severely affected by the social distancing norms, saw a functioning of 22.3% lower than its levels in February. Taking into account the following figures and the fact that the total economic output underwent a decline by 24.5%, the Organisation for Economic Cooperation and Development has said, “Britain, with its huge services industries which have been hit hard by the social distancing measures, could suffer the worst downturn among the countries that it covers, with an 11.5% contribution this year. Official figures have hinted that the economic impact brought about by the Virus is so devastating that the GDP may not recover till 2024.”

On that note, the Annual Fiscal Report published by the Office of Budget Responsibility, says that as the government winds down its furlough wage subsidy, unemployment in the country would rise sharply. This unemployment would be the product of the redundancy brought upon 10 to 20 percent of the 9.4 million jobs covered under the furlough scheme. Against this backdrop of rising unemployment, the economy is predicted to be 3 percent smaller than the predicted size for the year 2025. Economists, trade unions and businesses have warned against a long and uphill road towards recovery and one marked with substantial economic turbulences. The slight economic improvement in May was a result of the release of pent up demand, rather than an optimistic sign of economic recovery. The UK economy might display short term signs of improvement, but this may not last long, owing to the permanent scarring caused by the pandemic and the decline of the government’s fiscal support as the restrictions are eased gradually.

Hopes of an Economic Recovery

However, with the relaxation in the restrictions, Britain is seeing a ray of hope, as the economy is recovering faster than it was predicted to do so. Even if we assume the continuation of some restrictions, the British GDP is expected to grow by 6.5% by 2021. British economists and most notably the Chief Economist of the Bank of England, Andy Haldane has emphasized a recovery pattern, which he sees the British economy follow post this crisis. The pattern that Haldane has been expounding can be termed as the V-shaped recovery, where rapid economic growth is experienced following a steep downturn in economic activity. Expectations of a more rapid recovery, than what had previously been predicted, has led markets to achieve one of the strongest quarters on record. A prime example of this is the FTSE 100, in the UK rebounding by 9.1% over the quarter.

The biggest factor contributing to recovery, is the sooner than expected, materially faster and strong consumer spending. However, the Bank of England has emphasized the fact that the most important thing for the country to avoid is a repeat of high unemployment rates, as experienced in the 1980s. However, there persists the fear also mentioned by the Bank of England, that a rapidly growing economy may fuel the fire of inflation.

Job Retention Scheme

In an effort to plan for a speedy economic recovery, the UK government has diverted tremendous efforts coupled with an array of resources to preserve jobs. The government is of the belief that by doing so it prevents the long process of reattaching individuals to employers and jobs, allowing people a simple return to their work once restrictions have been relaxed. Within the scheme, the government pays for 80% of the employees’ salaries. In the month of May, the number exceeded 8.5 million, effectively bringing in 30% of the private sector workforce under the government’s monetary protection. Experts have predicted that had it not been for the Job Retention Scheme, the country would have experienced an unemployment rate of about 20%. However, the problem has not altogether been avoided as even with the scheme the unemployment levels are said to rise to 8% in the second half of the year. This is especially true for large cooperations who will have to make tough decisions regarding redundancies, owing to the lack of demand in the long term.

Conclusion

However, the return to pre-pandemic levels of activity is going to be severely affected by the permanent scaring done to the economy. Numerous businesses have failed in the time since the world pandemic began and many more are predicted to fail during the recovery phase when demand and revenue are still weak. This is due to the simple reason that during times of recovery businesses tend to look for additional working capital to finance inventories and growth, but recent trends have shown that banks might not be willing to extend loans to those businesses which they might consider weak or too vulnerable to economic shocks. Across Europe, we estimate that default rates in the speculative-grade category alone could rise to 8.5% by March 2021, from 2.7% in April. The following statistics provide a sufficient indication of the failure rates in the UK. Business failures have a knock-on effect on the economy. This happens when businesses fail, train relationships will end, supply chains will be broken and the production capacity will shrink. These factors deter the economy from growing back to its full potential and achieving the economic levels as seen during the pre-pandemic days. For the long term, things are still not very clear, there is a high possibility of the world adapting in such a manner that we see the emergence of new businesses, that might replace the struggling ones right now, and boost the capacity and long term growth potential.

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