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Brexit and Its Impact on the UK Economy

Brexit stole so many headlines in the past four and a half years that everyone has an opinion about it. Good or bad, it doesn’t matter anymore – Brexit is coming, and if that is the case, the two parties involved, the European Union and the United Kingdom, struggle to make the best of it. 

This is precisely the reason why the negotiations, deadlocked at the end of the previous weekend, continued. It is a clear message sent to the world by the two parties – they understand the decision, and a solution, or a deal, as they say, will be reached.

Make no mistake, there is no perfect solution in this case. For instance, almost half of the British people did not vote for Brexit, so anything agreed in this upcoming deal will not represent these people. However, what this deal will represent is a compromise. It must be presented as a victory in the United Kingdom, and as “not that big a deal” in Europe, even though both the UK and the EU know the contrary.

Using the Economy to Keep Score

At this point in time, with so many resources wasted and with so much time passed since the referendum, everyone just wants to see it done. And, for good reasons.

What happens after? After Brexit, we start to keep score. People will see if it was better or worse inside the European Union. If the economy worsens and social welfare declines, we may see people pushing for reintegration in the years or decades to follow. If that is the case, faced with the realities of Brexit, the integration will likely come on even stronger terms. Will Europe want the UK back? Definitely – Europe expressed its sadness before even the referendum started.

If there is no deal by the end of this month, the two parties will trade based on WTO (World Trade Organization) terms. According to Goldman Sachs, that would cost the UK about 2% in the medium term, but the EU only 0.4%. However, there is a wildcard in this scenario, albeit a temporary one – the vaccine. With the vaccine and a no deal Brexit, the UK is actually seen as growing in Q1 2021 at 0% and +4.6% in Q2 2021. In other words, the vaccine has the potential to mask the no deal Brexit impact, should that be the case.

This kind of calculation will dominate headlines in the years after Brexit. The worse the UK fares, the more the pressure mounts for reintegration.

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