Principles And Applications Of Macroeconomics Assignment Sample

Principles And Applications Of Macroeconomics

Introduction

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The European Union is a unified organization of 27 member states with authority in political, economic and social policies. The main aim of the European Union is peace, encouraging free trade and policies in working towards the benefits of their members. The EU was created by the Maastricht Treaty in 1993 and was approved by all the members of the European community.The European Union was formed to reduce and prevent the conflicts between the neighbors which built up during the second world war. Ahead of reducing conflicts, the EU was created with increasing the economic cooperation between six countries such as Belgium, Germany, France, Italy, Luxembourg and Netherlands. The UK joined the EU on 1st January 1973 as the country had a belief that the EU could improve the relation with other countries under the control of the Soviet Union.

The reason Britain did not use Euro is that Britain considered that the currency was not compatible to be used for the business operation for the organization in the country. The British government did not want to relinquish control of its own interest rate policies. The conservative party also known as Tories gathered a seat during the Brexit event. The Conservatives win 365 seats in the House of Common. The Tories party launched its election manifesto on 16th April 2016 with a promise to scrap human rights and hold a referendum on EU membership during 2017. The party also pledged to reduce net migration into the UK. The negotiation process consisted of an extension period and withdrawal agreement. The Brexit transition period presented a period where the EU and UK agreed to a withdrawal agreement where Uk is no longer a part of the EU but remained a member of the single market and customs union. The transition period started after the UK left Eu on 31st january 2020.

The trade deal between EU and the UK took place on 1st january 2021 which allowed both the countries to decide rules for future trading relationships. The BREXIT will have a positive impact on the economy and the welfare of the population. Effective trade deals will allow the UK to increase its economy and will have a positive impact on the welfare of the population of the country. The restriction of the trade laws allows enterprises in the UK to move more freely for doing business. The main objective of the essay is to present the positive and negative effects of BREXIT on the citizens of the UK. The essay discusses macroeconomic policies, fiscal and monetary policies. The essay also discusses the stages in the process of BREXIT.

Discussion

The goal of monetary policy is to affect consumer expenditure and consumer spending by manipulating interest rates and other monetary instruments (AD). Keeping inflation low and maintaining downturns at the inlet are the primary objectives of monetary policy. The Bank of England's Monetary Policy Committee (MPC) sets UK monetary policy (Adedoyin and Zakari, 2020). While they are free to set interest rates as they see fit, they are constrained by the Government's mandate to keep inflation under control.

The Bank of England determined the base rate. Here's what the Bank of England charges commercial banks to borrow money. In general, changes to the base rate have a ripple effect across the economy, affecting everything from savings rates to mortgages and lending rates. The Bank of England has two primary monetary policy instruments at its disposal. This is the Group Rate, which is the attention rate at which the charges of the banks borrow money from commercial banks (Oliver, 2019). Quantitative easing allows cutting savings and lending interest rates by purchasing bonds (QE). From April 2024, the basic income tax rate will be reduced to 19% from the current rate of 20 percent (costing £5.3 billion annually in 2024/25 and rising to £6.0 billion in 2026/27).

Impact of Brexit on the economy of the UK

(Source: Statista.com, 2017)

It will cost £2.4billion to decrease gasoline tax by 5p a litre for 2022/23. There will be an additional $500 million in the household assistance fund in 2022/23. There was a deficit of £46 billion, or 2.3 percent of GDP, in the UK budget in 2017. (peaked at 10.1 percent in 2009). The public sector's budget deficit was 87 percent of GDP, and the Government's debt presently stands at $1.8 trillion. The Government paid £48 billion in debt interest last year. The United Kingdom's Government will spend £814.0 billion. Government expenditure is expected to account for 41% of the UK's GDP in 2018, with health care accounting for £150 billion, pensions for $165 billion, education for $85 billion, and defense for $47 billion (48 percent in 2010) (Onaran et al., 2022). Welfare payments for the needy should be increased, even if it results in greater taxation. Too many people's lives are at risk by cutting welfare payments. Many individuals who get state pensions don't truly deserve it. As a consequence of the reduction in the annual inflation rate from 2% to 1% when this tractive effort decision was made, the actual worth of unemployment benefits has decreased. From 2007 to 2014, the percentage of persons who believe that unemployment compensation should be the primary focus of additional government expenditure has climbed modestly, rising from 7% of the population to 13% (Dell'Ariccia et al., 2018).

After no increase in February 2022, GDP decreased by 0.1 percent in March 2022. (revised down from 0.1 percent growth). As a result of a significant drop in the wholesale trade and repairing automobiles and motorcycles (15.1 percent), services decreased by 0.2 percent month over month. They were the primary cause of March's drop in GDP (Istiak and Serletis, 2018). Production declined by 0.2 percent in the month, which was somewhat offset by a 1.7 percent increase in construction. Most nations in the world have lower living costs than the United Kingdom. With no housing rent, a family of three may expect to spend around $3,135 ($2,268) each month (Steinberg, 2019).

UK’s status in European economy

(Source: Statista.com, 2021)

The average monthly cost of living in the United Kingdom for a single individual or student is $900 (£651). Quarter 4 2019 GDP is currently 0.1 percent lower than before the coronavirus outbreak. Full 2021's GDP growth was 7.4%, slightly just under earlier predictions of 7.5%, and rebounded after a 9.3% drop in 2020, which had been expected. Consumers' standard of living continues to be squeezed by increasing costs for electricity, food, and fuel, motor fuels, including second-hand automobiles, which pushed the inflation target in the UK to 9 percent in April, the worst since 1982 (Malinauskaite et al., 2019). By comparison, the rate in March was 7 percent, and estimates put the figure at 9.1 percent during the present times. Following the Ministry of Gas and Electricity Markets ceiling on energy prices, housing and utility costs rose by 19.2 percent and 7.7 percent, respectively. Gas prices rose 95.5 percent, while liquid fuels increased by 113.9 percent (Bisciari, 2019). Average fuel prices reached a new record of 161.8 euros per liter in April, compared to 125.5 euros per litre in the same month last year, a rise of 13.5 percent.

In the first quarter of 2022, the UK's unemployment rate fell to 3.7%, the lowest level since 1974 or below the previous quarter's 3.8% and projections of 3.8% (Bloom et al., 2019). As inflation increases, employees are demanding higher wages as the living costs continue to skyrocket, putting pressure on the Bank of England's ability to keep it in. It is estimated that in 2021, there will be 6.0 million persons from outside of the UK, including 9.6 million people born outside of the UK. It's in London that most of the country's foreign-born residents call home. Greater London is home to 35% of the country's foreign-born population. According to the main prediction, net migration after 2018 contributed to 73% of the population increase in 2028 and 84% in 2043 (Tetlow and Stojanovic, 2018). If future migration's effect on birth records is taken into account, the direct and indirect contributions of migration rise to 79% by 2028 with 86% by 2043.

Pro sentiments and anti-sentiments during Brexit

(Source: Statista.com, 2022)

According to a wide-ranging study released by the British Chambers of Commerce (BCC) on Tuesday, the UK economy was already stalling before the Brexit decision. Pre-referendum, the country's major business lobbying organization warned that the service sector, which is the primary engine of the UK economy, was deteriorating. During the 2nd period of 2016, more than 8,200 private sector enterprises participated in the study (Hassan et al., 2020). With one notable exception, the major Western democracies, including the United Kingdom and the United States, France, Germany, and Japan, still have a significant advantage over their growing rivals, according to the "Audit of Geopolitical Capability 2019." An updated Henry Jackson Society report on geopolitical capacities presents an evaluation of twenty major nations, including Nigeria, selected from the G20, assessing their geopolitical capabilities (Crowley et al., 2018). In low-wage areas where businesses formerly depended on employees from the EU, new research from recruiting service Indeed revealed on Friday that British salaries are increasing quickest.

During the period between 2010 through 2020, and over 2 million EU nationals came to live and work in the United Kingdom. After Brexit, EU citizens lost their ability to work in the United Kingdom without restrictions. As an associate of the European Merger, the United Kingdom has profited from lower trading costs with the rest of Europe. One of the most projecting instances of free vocation between EU members is the existence of a customs amalgamation, which implies that all trade tariffs inside the EU have been eliminated (Berthou et al., 20202). The European Union's current efforts to shape a European Single Market have also facilitated to decrease in non-tariff profession hindrances, which have been decisive in bringing down vocation costs. Events such as margin restrictions, directions of origin reviews, country-to-country disparities in lawmaking leading things like invention quality and security, or extortions of antidumping are examples of non-tariff profession problems. There are three main ways in which Brexit will raise employment costs between both the UK and the EU: higher import tariffs; higher non-tariff vocation barriers, such as diverse regulations and edge controls; and a lower chance of the UK partaking in future Europeanization efforts, like the continued decrease of non-tariff trade barriers. Higher import tariffs are the most obvious way in which Brexit will raise trade costs. Non-tariff barriers in vocation between the UK and the EU are assumed to be one-fourth of the reductive non-tariff obstacles seen in trade between us And the EU in the hard Brexit scenario. Assuming a hard Brexit, it is expected that a three-quarters rise in the reduction of non-tariff barriers (Brown et al., 2019).

CPI inflation rate in the UK

(Source: Statista.com, 2022)

Last but not least, trade costs inside the European Union have already been dropping 40 percent quicker than import prices between countries outside the OECD. Any future decreases in intra-EU import prices will not accrue to the United Kingdom if it leaves the EU. UK living standards would decline as a result of Brexit, according to the Centre for Economic Performance (CEP). According to the findings, a soft Brexit may cost the UK economy up to £1,300 per person, while a hard Brexit could cost the country up to £2,500 per person (Simionescu, 2018). Recent data on movements in production, pricing, trade, salaries, and investment in the wake of the Brexit referendum demonstrate that the UK has begun to bear the cost of its decision to leave the EU.

Compared to Theresa May's plan to have a "soft" Brexit, current Conservative ideas for future UK-EU ties based on free trade agreements would be between one-third and one-half more expensive. Better economic benefits would result from any Labour policies that preserve tighter trade connections with the EU than the Conservative arrangement. Anti-EU sentiment may raise questions about more than just the quality of economic ties with the EU. EU critics have a right to protest Europe's influx of illegal immigrants. According to their reasoning, EU membership might have a negative impact on the UK's cultural heritage and national identity. In the end, it would be a shame if the majority of British people supported a Brexit due to a major shallow desire for ephemeral independence (Simionescu et al., 2020). There has now been an agreement between the European Union and Great Britain to manage the fundamentals of their relationship after Brexit. Four full years after Britain's historic vote to leave the European Union, a deal has been struck. Despite months of discussions and the threat of a "no-deal Brexit," this event is being hailed as a Christmas miracle by the Conservative-led Government, which sees it as an opportunity to put a positive spin on the holiday season.

Estimated GDP loss for different countries in a no-deal Brexit situation

(Source: Statista.com, 2018)

According to preliminary information, some significant changes will go into effect on January 1. People will no longer be able to travel freely between both the UK and the EU. At the crossings, new regulations will govern which lines to wait in and how far in advance visitors should begin organizing their journeys to EU countries. Custom declarations will be required by imports and exports in England, Scotland, and Wales in the same manner as they are with nations outside the EU. After June 30, 2021, EU nationals living in the United Kingdom will have to determine whether or not they may stay in the country (Berthou et al., 20202). The departure agreement provides certain safeguards for UK nationals residing in the EU, but they must be aware of the individual legislation of each country. Both British and EU businesses are relieved by the agreement because the EU is their closest and most important trade relationship. As far as the amount of items that may be swapped goes, there is no limit whatsoever.

Even if the contents of the arrangement, which are said to be included in a 2,000-page document, will be scrutinised in the coming days, the fact that an agreement was made will be a relief to both parties. In Britain, where the economy had already been damaged by Covid-19, there was great concern that a settlement would not be reached. Tariff-free commerce between the EU and Britain would have been impossible without this agreement, which today controls a tariff-free trading relationship. Another concern was that the EU could wish to "punish" Britain, the first member to go; British Prime Minister Boris Johnson recently expressed this concern (Bloom et al., 2019). Talks appeared to fall apart at times, despite the fact that they had been going on for months. New relationships have been heralded as a "breakthrough" by Mr. Johnson and his administration, and now all eyes will be on how they perform in the next months and years. However, the present excitement should not diminish the necessity for further investigation. After the Brexit vote, Mr. Johnson's administration must show that the decision was worth it.

The decrease in vocation difficulties amid both the UK and the EU has caused a rise in commerce. About one-third of the UK's market with the European Economic Community (EEC) occurred before the country joined the EEC in 1973. Forty-five percent of the disseminates and 53 percent of the importations came from the 27 remaining EU countries in 2014. (ONS, 2015) (Bloom et al., 2019). 13 percent of the UK's gross internal creation is produced by EU trade. Lower pricing and easier access to higher-quality products and services are two advantages that increased trade brings to UK consumers. With extended distribution options central to enlarged transactions and incomes, the UK's workers and companies also expanded from the occasion to specialize in zones where the UK has a competitive advantage. Enlarged commerce increases manufacturing, wages, and existing standards in the United Kingdom via various avenues. Since at least David Ricardo's work, these standard static consequences of commerce have been recognized for many decades. Other means of enhancing well-being, such as increased productivity and innovation, have emerged in trade studies in the last few decades.

Conclusion

The economic impact of Brexit will depend on the UK's post-Brexit plans. This will have a considerably greater impact on the UK's economy than any savings realized from decreased EU budget payments. As if securing a trade agreement within 11 months wasn't difficult enough, the United Kingdom must also agree to a treaty that covers up legal gaps in how nations collaborate on security. It can be concluded that the economic future is not black and white, but this is the case regardless of Brexit. The underlying fact is that the UK, as well as other western countries, has continued to expand production and productivity slowly since the financial crisis. Increasing levels of public sector austerity, along with poor growth in bank lending, prohibit the aggregate demand from increasing faster than a snail's pace.

Security and policing specialists throughout Europe and the United Kingdom believe that Brexit will make their jobs more difficult. When it comes to Europol, for example, the United Kingdom no longer has a seat on its management team, which is responsible for coordinating significant European-wide organized crime investigations. And over four million people work in the UK's food and drink sector, which contributes £460bn to the economy each year. It accounts for a fifth of all manufacturing in the United Kingdom and is by far the largest part. Uncertainty persists regarding what will occur to food and beverage delivery systems when this transition phase concludes, and this uncertainty is causing considerable concern. Many Eastern Europeans make about a third of the workforce in the business. A minimum wage for migrants might limit the number of such employees. After Brexit, the administration has a monumental challenge in establishing the UK's position in the global economy. "Global Britain" is the Government's catchphrase. Europe and the United States will no longer be connected across the Atlantic as they once were. As a result, ministers need to build a more independent foreign policy. As the UK concentrates more on internal concerns than international affairs, this might imply less automatic support for the United States from the UK. New alliances with European partners will have to be forged outside of the EU's present institutions. One example is the E3, a loose coalition of the United Kingdom, Germany, and France that has collaborated on topics such as ties with Iran.

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