What are the economic considerations for a post-Brexit UK?
Now that the UK public has voted to leave the EU, attention turns to how the UK economy deals with the post-Brexit reality.
How will the UK trade with the EU post-Brexit?
As has been widely reported, the process of the UK leaving the EU is likely to take a minimum of 2 years from the date on which the UK decides to invoke Article 50. However, all indications suggest it would be highly optimistic to assume that the UK would be able to agree a new trade deal with the EU during this time. It is much more likely that any new trade agreement would be much longer in the making.
If the UK and the EU fail to reach a new trade agreement before the UK leaves the EU, any trade between them would be under the terms of the World Trade Organisation (“WTO”). This would mean that the EU and UK would be free to impose tariffs on goods entering into their markets, the rates of which would vary depending on the nature of the goods. Any UK products exported to the EU would still be required to comply with EU standards.
What sort of a trade deal can the UK cut with the EU?
Regardless of what side of the debate they fell, most economists now agree that the best way for the UK to move forward is to strike a positive deal with the UK which retains access to the single European market, whilst allowing the UK to broker deals with non-EU countries.
This will inevitably require come concessions towards the free movement of people, which means that any pre-referendum promises about curbing immigration may have been overly optimistic. However, it may be possible for the UK to seek reasonable restrictions on immigration, whilst still allowing it at sufficient level to appease the EU and to ensure UK industry is not robbed of valuable migrant labour.
Much will depend on the ability of the UK civil service to negotiate the best possible deal for the UK. This may be easier said than done, given that the civil service has not had to negotiate trade deals of this magnitude for at least a generation.
The UK’s best hope is therefore to strike up a deal which is similar to that which Norway currently has with the EU as a member of the European Economic Area. Under this model, Norway has access to the single market but is required to contribute towards the EU budget and allow the free movement of people. This is seen as considerably better than relying purely on the WTO, with this option likely to shrink the UK economy by 4.5% by 2020 according to some predictions.
The UK Government now faces the unenviable task of striking a balance between putting a coherent plan into action sooner rather than later (in order to stabilise the short term uncertainty) and giving itself enough time to ensure the plan is as good as it possibly can be before Article 50 is triggered (in order to ensure long-term stability).
How will the UK trade with the rest of the world post-Brexit?
Once it is outside of the EU, the UK will no longer benefit from the EU’s free trade deals with non-EU countries. The UK will therefore need to replace these with its own trade agreements with these countries and create new trade links with countries with whom the EU does not have links.