The Ongoing Impact of BREXIT on the UK Amid the Pandemic

The Ongoing Impact of BREXIT on the UK Amid the Pandemic
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Table of Contents TOC \o "1-3" \h \z \u 1. Introduction PAGEREF _Toc96856531 \h 32. Discussion PAGEREF _Toc96856532 \h 42.1 British Exit (BREXIT) – Reasons, Key Events, and Overview PAGEREF _Toc96856533 \h 42.2 COVID-19 – The Outbreak and Initial National Impacts PAGEREF _Toc96856534 \h 52.3 BREXIT & COVID-19 – Dual Shocks for the UK PAGEREF _Toc96856535 \h 62.3.1 Economic shocks PAGEREF _Toc96856536 \h 62.3.2 Supply chain disruptions PAGEREF _Toc96856537 \h 72.3.3 Workforce and employment challenges PAGEREF _Toc96856538 \h 92.3.4 Political relationships with the European Union (EU) PAGEREF _Toc96856539 \h 102.3.5 Political relationships with China PAGEREF _Toc96856540 \h 112.3.6 The financial sector in the UK PAGEREF _Toc96856541 \h 132.3.7 Emergence of FinTech solutions PAGEREF _Toc96856542 \h 142.3.8 Economic trade reforms with BEXIT & COVID-19 PAGEREF _Toc96856543 \h 152.3.9 Managing GDP with BREXIT & COVID-19 – Import/export insights PAGEREF _Toc96856544 \h 162.3.10 Speculations for foreign direct investments (FDI) PAGEREF _Toc96856545 \h 182.3.11 Foreign exchange (FOREX) viability and purchasing power PAGEREF _Toc96856546 \h 192.3.12 Influences of BREXIT & COVID-19 on the housing industry PAGEREF _Toc96856547 \h 202.4 Recommended Measures for Economic Growth & Stability PAGEREF _Toc96856548 \h 222.4.1 Role of government PAGEREF _Toc96856549 \h 222.4.2 Role of enterprises PAGEREF _Toc96856550 \h 242.4.3 Role of citizens PAGEREF _Toc96856551 \h 263. Conclusion PAGEREF _Toc96856552 \h 28References PAGEREF _Toc96856553 \h 29Appendices PAGEREF _Toc96856554 \h 34
1. Introduction
The United Kingdom (UK) experienced a series of events that shaped the country's economic, political, and social structures. Over the years, the UK encountered historical events, such as war, climatic changes, and other challenges. However, the UK rebounded with effective policies and strategic decisions to become one of the leading nations in the gross domestic product (GDP), currency dominance, education, industrial reforms, and employment (Faulconbridge & Bruce, 2020). According to Islam (2021), the UK experienced a paradigm shift after the British Exit (BREXIT) from the European Union (EU). BREXIT increased speculations for a downturn of the UK by exiting one of the largest trade alliances worldwide. Figure 1 in the Appendices exhibits the evolution of economic growth before and after the BREXIT. The UK economy has struggled since FY2016, marking the acceptance of a referendum for the UK to exit the EU with mutual consent (Drechsel, 2020). Unfortunately, BREXIT was not the only shock for the UK in the modern era. The shock accelerated after the COVID-19 outbreak in FY2019.
In FY2019, the global economy transformed after the deadly virus widespread in countries. Governments announced immediate lockdowns and reshaped the global trade between countries. Economies dependent on the service industries, such as the UK, experienced the most challenges to survive the pandemic (Dyer, 2020). The collective effects of the BREXIT and the COVID-19 introduced paradigm shifts across different industries, economic exchanges, and political relationships of the UK. This research aims to investigate the dual impacts of BREXIT and the COVID-19 outbreak on the reformation in the UK. The research would investigate different parameters from political, economic, and social perspectives to measure the evolution of the UK after the two marked events in British history. The research would make strategic recommendations to reinstate the parameters and drive the UK towards global leadership by managing the shocks.
2. Discussion
2.1 British Exit (BREXIT) – Reasons, Key Events, and Overview
In 1973, the UK joined the European Economic Community (EEC), known as the EU, in the modern era. The UK joined forces with the trade bloc to promote economic exchanges between the member countries. However, Britain left the union in 2016 due to different political interests. In FY2013, David Cameron won the elections for Conservative Party to become Prime Minister (PM) of the UK. The post-election events emphasized trade independence for the UK (Kirby, 2020). The BREXIT referendum was initiated in FY2016, leading to a voting campaign. While PM Cameron voted to remain with the trade bloc, other political parties in the UK voted to leave the EU and become independent. The political parties stated that leaving the EU would improve the financial position of the domestic healthcare sector. However, PM Cameron remained convinced that BREXIT poses economic risks more than opportunities for the people (Kirby, 2020). After the voting, the referendum agreed to leave the trade bloc independent for global exchanges with other countries.
The speculations made by PM Cameron were turning into realities for the UK immediately after the BREXIT. The living standards and economic trends became unfavorable for people. Most economists notified that people felt the immediate effects of inflation and unemployment. The purchasing power weakened since the disposable income was reduced during the BREXIT (Giles, 2021). Figure 2 illustrates the downward trend in the UK after the EU referendum. The figure represents the UK's disappointing economic performance for people after BREXIT. The country also encountered trade impacts within the European region. The EU members held a grudge in the initial phases towards the UK. The country entered into a short-term trade crisis, which influenced the GDP in the subsequent fiscal periods (Giles, 2021). UK was making continuous efforts to recover from the BREXIT effects. However, the country encountered the COVID-19 outbreak before concluding FY2019.
BREXIT is a significant event in UK history. The country experienced challenges in the initial phases, which the government-controlled through different policies, particularly for housing, healthcare, and financial sectors. However, the COVID-19 outbreak pushed the UK further into crisis, causing negative GDP growth, poor living standards, and currency depreciation in the long run.
2.2 COVID-19 – The Outbreak and Initial National Impacts
In FY2019, the British economy encountered an invisible enemy: the COVID-19. The virus widespread influenced the UK from local and international parameters. Under the COVID-19 outbreak, the country encountered different opportunities since the global industries were transforming the business models to digitalisation. The UK is a service-based economy (Kippin & Cairney, 2021). The pandemic provided an early opportunity for the UK to recover from the post-BREXIT effects by offering digital solutions to the global economy. However, the national lockdowns in trading countries halted international exchange for the UK. The manufacturing-based economies were practising social distancing to stop the widespread contamination. Simultaneously, the emergence of the new normal also shifted most economies to Work from Home (WFH; Kippin & Cairney, 2021). The government announced different reforms and developments domestically to overcome the collective effects of the COVID-19 outbreak and BREXIT on the economy.
According to Cairney (2021), the UK government identified the emerging problems that the economy could encounter in the upcoming fiscal periods. Due to the BREXIT effects, worldwide trading partners halted production activities. As a result, the British service manufacturers could not supply service solutions and other goods internationally to strengthen the GDP. PM Boris Johnson reallocated the economic resources in Q1 of FY2020 to overcome the dual effects of BREXIT and the pandemic (Cairney, 2021). PM Johnson announced that the government would increase the healthcare budget and utilise technological solutions for delivering medical attention to the people domestically. The government emphasised reducing fatalities caused by viruses to protect the human capital for the upcoming fiscal periods. The government followed a 'mitigation' strategy to manage the dual crisis created by the BREXIT and the COVID-19 simultaneously. Fortunately, the government successfully protected human capital by shifting its focus on the healthcare sector during the early phases of the pandemic (Cairney, 2021).
According to the critics, the British government exhibited a disappointing performance from the economic and political perspectives. The trade independence, which served as an integral reason for BREXIT, influenced the UK to exhaust valuable resources during the COVID-19 outbreak. The speculators criticised national policymakers, creating nationwide havoc (Cairney, 2021). Regardless of the successful prevention of fatalities, the UK failed in strategic decision-making and economic prosperity.
2.3 BREXIT & COVID-19 – Dual Shocks for the UK
2.3.1 Economic Shocks
According to the 'Office of National Statistics (ONS),' the UK is undergoing the deepest recession since the pandemic. ONS reported that the GDP fell by 20.4% in FY2020, a significant reduction since FY1955. Figure 3 denotes the GDP comparison for the UK against its trading partners, namely Japan, the United States of America (USA), Germany, and other trading partners. ONS claimed that the GDP decline in the UK is 10.6% more than in the USA in FY2020 (Partington, 2020). The statistics further indicated that the UK suffered a 12.1% GDP loss out of 20.4% due to exit from the EU trade zone. The government announced trade schemes and other provisions to overcome the GDP deficit during the pandemic. However, the economic shock led the country into the deepest recession, which influenced its international position during the pandemic (Partington, 2020).
Until FY2021, the economic downturn further weakened performance viability in the UK. The COVID-19 outbreak influenced the government to increase spending on public wellbeing. The government spends enormous funds on health facilities and services to prevent fatalities during the pandemic. However, the recession simultaneously influenced the country's purchasing power and employment factors (Harari et al., 2021). The collective effects of the pandemic and BREXIT forced the government to revise tax policies in FY2021. The government could not earn substantial revenue during the pandemic through taxes. The overall effect drove Britain towards a trade deficit. Statistically, the government deficit is equivalent to 95% of the GDP in FY2021 (Harari et al., 2021). Figure 4 illustrates the trade deficit recorded for the UK in FY2021.
Romei (2021) stated that the collective effects of BREXIT and COVID-19 led to the economic performance of the UK to lowest in 300 years. Since FY2019, the UK produced few goods and services, which influenced international trading further during national lockdowns. Unlike other countries, the national problems in the UK are sourced from BREXIT and the COVID-19 collectively. The government is combating with invisible enemy independently since the trade bloc is not providing strategic or financial support since the referendum (Romei, 2021). The government has been suffering from an economic crisis since FY2019 with minimal strategic responses.
2.3.2 Supply Chain Disruptions
According to Powell and Hutton (2021), the UK immediately experienced supply chain disruptions during the COVID-19 outbreak. The supply chain disruptions initiated from a global shortage of materials, staff deficit, and increased lead-time in transportation. The fundamental reason for the global shortage of materials incurred is the immediate lockdowns in the Asian region. The British government and enterprises experienced challenges while procuring materials from trading partners that regulate manufacturing-based economies (Powell & Hutton, 2021). The global shortage of materials influenced the domestic enterprises to manufacture necessary goods, resulting in low GDP since FY2020. Besides, the domestic economy reported high inflation. Procurement during the global shortage increased Consumer Price Index (CPI) for fundamental commodities, while the domestic population had weak purchasing power since BREXIT (Powell & Hutton, 2021).
The staff deficits incurred due to brain drain in the economy contributes directly to the supply chain disruptions. Since BREXIT, the local enterprises centralised the manufacturing facilities and established a low-cost wage model. Enterprises in the UK are following a cost minimisation business model to overcome the effects of BREXIT (Roscoe, 2020). However, the uncertain pandemic influenced the cost minimisation model since manufacturing facilities could not operate under lockdowns. The existing labor force is migrating to neighboring countries, like France, Germany, and Italy, for better wages and sustainable employment opportunities. In recent cases, the British labor force also migrated to African and Asian regions to secure better living standards and higher remuneration (Roscoe, 2020). The domestic workforce disrupted labor supply for the domestic enterprises, influencing the GDP in the long run.
Lastly, the transportation channel shrunk since the CPI disallowed workers to commune frequently during the pandemic. According to Hu (2022), the fuel prices in the European region proliferated during the pandemic. Most transportation networks reduced activities to meet the costs and avoid unnecessary losses during the economic downturn. Unlike EU members, the British economy is struggling with the dual effects of BREXIT and the COVID-19 outbreak. As a result, the transportation networks were disrupted immediately since the local population could not meet operational cost benchmarks during the recession (Hu, 2022). The supply chain disruptions influenced the GDP performance in the UK under dual episodes of BREXIT and COVID-19.
2.3.3 Workforce and Employment Challenges
The COVID-19 outbreak in the UK influenced the employment rate in the UK since the domestic labor market reported approximately 7.6 million jobs at risk. Domestic enterprises performed permanent layoffs, tentative furloughs, and wage reductions. Statistics denote that more than 50% of jobs pay less than GBP10 per hour to workers, causing people to meet ends under the deepest recession. The national lockdowns in the UK commenced in April 2020. More than 9 million people were furloughed immediately. Figure 5 denotes the distribution of furlough among workers. Less than 1% of enterprises announced zero layoffs during the pandemic (Allas et al., 2020).
As Roscoe (2020) identified previously, the domestic enterprises shifted the business model to cost minimisation during the COVID-19 outbreak. Like individuals, enterprises experienced dual effects of the pandemic and BREXIT equally. The additional burden imposed by lockdowns forced the enterprises to practice furloughing and layoffs. Since commercial activities in domestic and international markets were temporarily halted, enterprises were unwilling to pay minimum wages to workers during lockdowns. Researchers from Management Sciences proposed different theories and practices to assist enterprises during crises. However, the implication remained weak since businesses could not generate the necessary revenue to overcome labor costs during the pandemic (Gosling et al., 2021).
Nonetheless, the demand for a workforce increased nationwide in the healthcare sector. According to Harris and Rafferty (2021), nurses and midwifery workers were overburdened with work due to abnormal demand for medical assistance domestically and internationally. The COVID-19 outbreak served as an opportunity for healthcare workers. The industry recruited qualified workers more and offered attractive remuneration. Unfortunately, the healthcare workers reported immense psychological effects due to excessive work burden. The domestic healthcare industry experienced a sudden rise in patients reporting to the medical facilities for assistance. However, the practitioners and healthcare attendants were low in supply to maintain the balance (Harris & Rafferty, 2021). The pandemic and BREXIT created challenges for most industries while managing the workforce. The labor market encountered a sudden reduction in demand nationwide. However, the distribution remained unbalanced in the healthcare sector since the number of patients increased during the COVID-19 outbreak.
2.3.4 Political Relationships with the European Union (EU)
According to Henley (2021), the EU members expressed political disappointment and distrust towards Britain after the BREXIT. A recent poll, engaging key EU members like Austria, Spain, Germany, France, and Italy, stated that the EU has the least confidence in establishing a long-term trade relationship with the UK. The political relationships between the EU and UK weakened during the pandemic (Henley, 2021). The EU members found an opportunity to invest in safe currencies, namely American Dollars (USD), to sustain the foreign exchange (FOREX) rates for Euros in the international markets. Frequent purchases of USD by EU members created distress among the British government. PM Johnson claimed that the trade bloc expresses a post-BREXIT grudge towards the UK. Simultaneously, EU representatives responded that the trade bloc capitalised on an opportunity that emerged under crisis (Henley, 2021). The conflicts of political interests between members and the UK show weakened post-BREXIT relationships during the COVID-19 outbreak.
London became a targeted hub under the COVID-19 outbreak. The FOREX investment made by the EU members individually, followed by global lockdowns, crippled the exchange value for Pound Sterling (GBP) in the international market. Michel Barnier, the Chief Negotiator for the EU, underwent dialogues with PM Johnson to lay off referendum under global crisis (Kaye, 2020). Barnier argued that the European region must sustain its political and economic dominance worldwide. However, PM Johnson remained focused on trade independence and long-term provisions for the UK, choosing to continue with the referendum (Kaye, 2020). The political relationships between the EU and the UK continued with conflicts and disagreements during the global crisis.
Concurrently, the partisans expressed disappointment towards PM Johnson and Members of the Parliament. The ongoing global crisis required the UK to trade ties with neighboring countries associated with the trade bloc (Davies et al., 2021). The agreement could prevent the UK from economic shocks and currency devaluation during the COVID-19 outbreak while simultaneously mitigating BREXIT's effects. However, the disagreement expressed by PM Johnson created distrust in the political views of the government locally and internationally (Davies et al., 2021). Precisely, the political exchanges between the UK and EU are not approaching harmony nearby, regardless of the crises.
2.3.5 Political Relationships with China
According to Curtis, Lunn and Ward (2020), political relationships between the UK and China have deteriorated sharply since the COVID-19 outbreak. Critics reported that the UK made a wrong political decision by entering into strategic rivalry with China after BREXIT. China is the second-largest economy in the world. The Chinese economy comprises production, workforce, and technology solutions collectively (Curtis et al., 2020). Besides, China has bilateral trade relationships and investments with progressive countries, mainly African and European countries. Under such circumstances, the political disagreements between China and the UK are unfavorable for the economy in the long-term trade lifecycle. Speculators claim that the political relationships between the UK and China are heavily dependent on the US-China trajectory, which could lead to a cold war in the future (Curtis et al., 2020).
The political grudges with China could influence the economic sustainability of the UK. Statistically, the UK exports to China worth GBP30.7 billion in FY2019, a fourth successive trade increase for the domestic economy (Curtis et al., 2020). In the same year, China became the sixth-largest exporter globally. Besides, the British telecommunication industry is dependent on China. China contributes significant infrastructure assets in the UK, which sustains the telecommunication sector for the country in the European region (Curtis et al., 2020). A political turmoil could influence the domestic industries significantly since China is a trade originator in the British economy.
Additionally, the British education sector is equally dependent on political relationships with China. China is a leading source for international students in the UK. Until FY2019, 62% of international students were from China. Recently, the UK became a popular destination for international students (Curtis et al., 2020). However, political differences could compromise the inflow the sustainability of the educational sector in the long run.
Lastly, the British economy is compromised from the gross national product (GNP) perspective. Arguably, China is a primary importer of pharmaceuticals, automotive commodities, financial solutions, and other consumer goods. Most British manufacturers established facilities in China to secure cost advantage and feasible access to other countries in the Asian region (Curtis et al., 2020). The political turmoil with China could influence the economic sustainability of the UK internationally, considering the ongoing crises of the COVID-19 outbreak and BREXIT domestically.
2.3.6 The Financial Sector in the UK
The financial sector in the UK experienced substantial differences in business income during the pandemic. The BREXIT effect led the economy to a trade deficit while domestic banks offered loans and other assistance to people. House mortgages and medical assistance are the frequently utilised services banks in the UK. However, the pandemic reversed the overall business model for the national financial sector (Beck et al., 2020). For instance, the nationwide lockdown halted the business activities during the pandemic. The business transactions and exchanges were limited in the early phases, which influenced the revenue stream in the banking sector. Banks could not offer loans and earn interests to generate commercial inflows, questioning the pandemic's initial phases (Beck et al., 2020). Precisely, the banking sector was the primary medium to experience the dual effect of BREXIT and the COVID-19 outbreak.
Subsequently, households influenced operational viability for banks during the pandemic. The BREXIT effect influenced the purchasing power of households. The CPI for essential commodities increased due to inflationary effects on the economy. Households sought the financial sector for mortgages, healthcare expenditures, and other necessary facilities offered for public wellbeing (Beck et al., 2020). The COVID-19 outbreak caused additional damage to the banking sector since most households became unemployed or recorded wage reductions. The government waived loan repayments for households and made necessary alterations in the monetary policies during the pandemic to assist debt burdens (Beck et al., 2020). Individuals and enterprises experienced a one-sided benefit since the losses were transferred to the financial sector through revised monetary and fiscal policies after the COVID-19 outbreak.
Lastly, the financial sector experienced liquidity challenges in the business lifecycle. Banks had lower capital buffers and encountered adverse spillover effects. The financial sector immediately traded capital instruments in domestic and international markets to manage liquidity. The instrument prices fell sharply, causing banks to suffer losses during the initial phases of the pandemic lifecycle (Beck et al., 2020). The COVID-19 outbreak and BREXIT made the financial struggle in the UK.
2.3.7 Emergence of FinTech Solutions
Until FY2021, British financial institutions responded to the collective effects of BREXIT and COVID-19 through FinTech solutions. The economy moved to a 'new normal' phenomenon. The government introduced policies to maintain social distancing, and enterprises adopted WFH culture. The paradigm shifts allowed the financial sector to capitalise on opportunities by offering digital solutions to individuals and enterprises (Kotecha et al., 2021). FinTech solutions allowed the domestic financial sector to maintain its liquidity position and re-establish the value of capital instruments traded in the initial phases. FinTech solutions include mobile payments, digital payments, and other modes to perform transactions with minimal human interaction. Individuals and enterprises adopted channels offered through FinTech solutions to manage routine exchanges of goods and services. Speculators confirmed that the British economy is progressive in adopting FinTech compared to other European countries (Kotecha et al., 2021).
Shilling and Eckenrode (2020) claimed that the FinTech solutions introduced in the UK could overcome COVID-19 uncertainties. The financial sector adopted a cost-minimisation approach to increase liquidity positions while encountering the dual effects of BREXIT and the pandemic. Besides, the financial sector gathered valuable data about enterprises and individuals to strategise resource allocations for upcoming fiscal periods. Customers equally experienced streaming servicescape with minimal human interaction. Most customers could route payments locally and internationally by surpassing minimal barriers in the servicescape. Some popular FinTech services that emerged during the pandemic are PayPal, Lending Club, Square, and Flock (Shilling & Eckenrode, 2020). The financial sector revived the disturbed business model under BREXIT and COVID-19 constraints using FinTech solutions.
Additionally, the World Bank issued a Press Release in FY2020, stating that the COVID-19 outbreak created an opportunity for the British financial sector by introducing different reforms. The FinTech solutions collectively made the payment mode secure and protected individuals and enterprises. Approximately 40% of the financial institutions in the UK strengthened process controls to build customers' trust for using digital payment modes during the pandemic. The industry experienced a short-term effect of data storage cost. However, the liquidation improved for banks through FinTech solutions in the later stages of the business lifecycle (Price & Young, 2020).
2.3.8 Economic Trade Reforms with BEXIT & COVID-19
As previously identified, the British economy suffered a dual effect of the BREXIT and COVID-19 outbreak. The government shifted trade focuses by manufacturing essential goods and services to maintain relationships internationally while sustaining industrial prosperity domestically. The British government eliminated trade restrictions to export goods and services in Europe, Asia, and the Middle East. The regions were demanding solutions to access necessary commodities during lockdowns to mitigate crises in home countries (ITC, 2020). The government made necessary efforts independently to trade essential commodities with the EU members during the pandemic. The trade reforms allowed the British economy to collectively generate liquidity through international exchanges and operational viability for local enterprises. The efforts kept the UK in an advantageous position worldwide, reducing trade deficits until FY2021. However, the deficit continued each quarter with a declining trend (ITC, 2020).
The government introduced second trade reform by improving procurement facilities locally. The government announced that standard procurement is insufficient to manage the dual effects of BREXIT and th...