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Published : 01 Jul 2016, 23:17:16

Impact of Brexit on Bangladesh

economy: A close look
Altap Hossen

June 23, 2016, is a black day for the European Union as the people of
the United Kingdom voted in favour of leaving the union. Clearly, it is a
massive drive to the European experiment in post world war-II. It will
have outrageous implications all over the world especially for the
developing countries like Bangladesh though the decision of departing
the EU will come into effect after 2018. Furthermore, other EU
countries may be influenced to leave the bloc subsequent to Brexit.
Indeed, European politics and financial markets are thrown into a great
turmoil after the referendum in Britain.

Bangladesh, a least developed nation, has been enjoying the zero-duty

market access since 1971 under the 'Everything but Arms'
arrangement. The UK is Bangladesh's third largest importer and second
largest provider of remittance. The total export and import volume
between Bangladesh and the UK during the FY 2014-15 was valued
US$ 3205.45 million and US$ 330.20 million respectively. Export items
from Bangladesh to the UK mainly include knitwear, woven garments,
engineering products, frozen food, leather etc. Import items from the
UK to Bangladesh mostly include textiles and textile materials,
prepared foodstuffs, base metals, machinery and mechanical
appliances, electrical equipment, chemical products, etc. The
readymade garments products constitute nearly 90 per cent of our
total export. Besides these, local businesses also export agro-based
products to the UK including fruits and vegetables worth more than
Tk.4 billion each year. Nearly 40 per cent of our total export of









After the referendum, the pound fell more than 10 percent that is the
lowest value since 1985 and devaluation of pound through Brexit might
hurt Bangladesh economy in different ways. UK may adopt an
immediate conservative move on their financial expenditure as the
purchase of goods or services in the UK will be more expensive and
goods being sold to other countries from the UK will become cheaper in
particular. Again, it could encourage imposition of a huge tariff on
imports to raise revenue or to protect their domestic industries. If
Brexit is effective, migrant workers and NRBs may defer sending
money back home until the currency regains its old position. Racial
tension may be raised as vote highlighted disagreement on
immigration. Finally, it will echo around the world that may induce
As a consequence of Brexit, Bangladesh may lose its competitiveness
over its counterparts, especially in the export trade. Thus, Brexit may
negatively impact on exports and remittance earnings of Bangladesh.
Moreover, it may significantly influence our future plan of expanding
Nobody exactly knows what will be the impact of Brexit on the world
economy including Bangladesh. However, if the UK continues to allow
duty-free market access after its exit, Bangladesh would not have
difficulties in export. If something like this happens, the impact will be
lesser than anticipated. UK would continue to grow because of a large
According to Capital Economics, a London-based research firm, Brexit
would cause at the most a GDP drop of 0.2 per cent across Asia. This is
a matter of concern for us. The government will have to make
necessary adjustments in the proposed budget and keep the export

sector vibrant by maintaining the tax at source on readymade

garments export at 0.60 per cent instead of 1.5 per cent. In fact,
consequences of Brexit will generally depend on UK's reactions.
Bangladesh needs to proceed carefully. It should inclusively analyze
the post-Brexit global economic changes by forming a national
committee involving representatives of trade bodies, law practitioners,
economists, researchers and representatives from concerned ministries
and agencies so that effective actions may be taken promptly. The
government ought to start lobbying and need to renegotiate with UK to
retain the duty-free access. Accordingly, the government should also
try through the diplomatic channel so that the trading facility now
being enjoyed in the UK through EU to keep pace with the global
The writer is Assistant Secretary (Planning and Research) of FBCCI and
former Assistant Research Economist to Vice Chancellor of Uttara

Brexit may impact trade growth of Bangladesh

Tribune Business Desk

The decision of Brexit from EU apparently emits deep global uncertainty hurting the attractiveness
and growth prospect of EU and heightens global trade, business and investment volatility, says
Dhaka Chamber of Commerce & Industries (DCCI)
Apparently, leave majority decision is going to emerge a new geo-political and geo-economic epoch
throughout the globe.
Indeed, EU is the largest export market and UK is the second largest Bangladesh bound foreign
investor and export destination for Bangladesh worth of US$3.4 billion led by $2.9 billion RMG and
other non-traditional products.
DCCI in a statement yesterday feels considerable anxiety that the jolt from the Brexit may affect
Bangladesh undermining the export growth potential under GSP facility and remittance earning and

spill catastrophic impact on the bilateral trade and investment relationship above all growing
development cooperation for Bangladesh.
DCCI also fears that Brexit will adversely upset and affect the global financial and capital market
depreciating Pound Sterling against major dominating currencies. Meanwhile, the Pound Sterling fall
by 10% against the dollar and euro plunged by 3% which cant guarantee immunity to Bangladesh.
Potential thwart of purchasing power slump of EU zone customers and devaluation shock of pound
and euro will adversely hit incremental export business and earning of Bangladesh especially
flagship of RMG sector given that EU accounts for 55 percent and UK accounts for 12% of global
RMG export of Bangladesh and other potential exportable products in the pipeline.
The plunge will also downsize remittance flow and FDI inflow in Bangladesh. In addition, $50 Billion
RMG export target earning backed export led economic graduation may dwindle.
In the wake of the newly emerged context, DCCI requests the government to immediately take into
account the possible consequences and precautionary measures to deal with the changing
development initiating focused bilateral discussion with foreign office of UK and UKTI to find
alternative way-outs and avoid unforeseen economic menace.
DCCI also solicits government to form a national committee comprising of trade bodies, trade expert,
international trade law practitioner, economist, researcher, and representative from concerned
ministries and agencies to observe and report findings to the government on post BREXIT global
economic order.
- See more at:

Bangladesh is not about to face a doomsday scenario when Britain finally leaves the European Union
in 2019 as expected. It is quite possible that between now (August 2016) and 2019 (called B-Day
in Whitehall) when Britain officially leaves the EU, many other major events can affect our
economic and political landscape, but it is unlikely that the economic prosperity of Bangladesh or its
trade relations will change in a big way entirely because of Brexit. But there are some changes on a
small scale that will possibly happen, such as more immigration from Bangladesh to Britain,
increased levels of trade with Britain, and more international aid. However, a major factor that will
affect us in the final analysis is the precise terms of withdrawal negotiated by the EU and the UK,
particularly the trade deals.
Against this backdrop, the UK representative to UNCTAD Mr. Mark Mathews' assertions that Brexit
will have no impact on UK-Bangladesh relationship is a little empty, since in the post-Brexit world,
market forces will determine what happens to trade relationships. Most importantly, if the UK falls

into a recession (the income effect) or its exchange rate goes down (the price effect) for a
sustainable time period, Bangladesh exports to UK could be hurt. His other claim that the UK will
continue to meet its commitment to providing 0.7 percent of their Gross National Income in Overseas
Development Assistance (ODA) will obviously be good news for its recipients. This will allay any
fears that ODA might drop after Brexit, a claim made by the United Nations Office of the High
Representative for Least Developed Countries, Landlocked Developing Countries and the Small
Island Developing States (UN-OHRLLS), which estimates that British aid to all developing countries
will drop by $1.9 billion.
Currently, UK is Bangladesh's third largest importer of RMG after the US and Germany. The lower
value of pound will make Bangladeshi garments more expensive to British buyers, but this price
effect is expected to be minuscule and short-lived. Bangladesh now enjoys a duty-free-quota-free
status (DFQF) with the UK, and unless something changes, we should be able to keep that DFQF
status, at least in the short run. On the other hand, our imports from the UK will be cheaper and it
might be a good time to buy British equipment and other capital goods.
It may be worth mentioning here that some in the anti-Brexit camp have been predicting dire
consequences of Brexit for developing countries. Overseas Development Institute (ODI), for
example, has estimated Bangladesh will experience a significant drop in exports due to its
dependence on the UK and EU for 50 percent of its export destination. To quote its July 7 report,
Bangladesh and Cambodia in textiles and garments, and Kenya in flowers, will be among the
countries most directly affected. In the case of Bangladesh, 90 percent of Bangladeshi exports to the
UK are in textiles and garments, with the UK representing 10 percent of Bangladeshi exports.
Assuming a unit elasticity of demand, total Bangladeshi exports are expected to fall by 0.9 percent as
a result of the weaker pound. This does not even include the negative effect in the UK demand
associated with the fall in income and a decrease in consumer confidence. Needless to point out, the
pound has bounced back and Bangladesh is maintaining its competitive position in the UK market.
In so far as trade is concerned, in case the UK is allowed to remain in the single market, a privilege
it now enjoys, British businesses will still have access to 500 million consumers across the EU. The
impact on Bangladesh will then be minimal. The question is how likely is this outcome? The single
market stipulates free movement of goods, people, services and capital between the countries and is
made possible by removal of trade barriers including tariffs and the harmonisation of national rules at
the EU level. In the post-Brexit world, it is impossible for the UK to comply with many of these
regulations, including free movement of labour, child benefit for migrant workers, open fisheries, etc.
In fact, the most clamorous voices in favour of single market are equally vocal against the free
movement rules. Thus, it needs to be seen whether Britain can skilfully negotiate a deal which lets it

maintain the unfettered trade relationships it enjoyed while it chooses to opt out of the less popular
ones that the Brexit voters rejected.
Turning to immigration, it is a foregone conclusion that the UK will tighten its immigration rules to
slow down net immigration from the EU. How that affects the rest of the world, including
Bangladesh, is still up in the air. In 2015, the UK had a net migration of 333,000 up from 318, 000 in
2014. Some 630,000 people moved into the UK in 2015, while 297,000 left the country, for a net
migration of 333,000. Of those, 184,000 came from the EU. These figures are in sharp contrast to
David Cameron's promise in 2010 to keep the net migration level to 100,000 (100K). While it is
not clear if the new cabinet in UK will adopt this 100K target, it is known that the new Prime
Minister Theresa May had as early as 2014 embraced 100K as the magic number, and most recently
reiterated her preference for the 100K ceiling.
In this context, Bangladeshi students who were planning to study in the UK might find some
universities or colleges of their choice have tightened their admission rules. The new government is
of the view that many future migrants find colleges as easy entry points to the UK. The British Home
Office has reportedly estimated that one in five foreign students overstays their visa and continues
to live in Britain long after their course has finished.
Whatever the final outcome from UK-EU negotiations, Bangladeshi restaurant owners in the UK are
already rejoicing and it is expected that Brexit will benefit them considerably. It is reported that five
restaurants are closing every week due to shortage of Indian chefs, which is blamed on the EU
immigration policy. Since Britain last year had 333K net influx of immigrants, it had decided to
curtail immigration from non-EU countries, including Bangladesh, India, and Pakistan, to comply
with free access for EU citizens rule. According to Pasha Khandaker, President of the Bangladesh
Caterers Association (BCA), a trade association in the UK, EU's freedom of movement rules had led
to the UK Government introducing crippling limits on non-EU workers, which had made it much
harder for curry businesses to recruit skilled chefs. Needless to point out, BCA members are likely
to savour the rosy outlook for the future of their industry.
Exit of the United Kingdom form the European Union (EU) might have impact on
Bangladeshs economic growth, the Dhaka Chamber of Commerce and Industry (DCCI)
said in a statement on Saturday, says news agency UNB.
The business body in the statement said the decision of Brexit from EU apparently emits
deep global uncertainty, hurting the attractiveness and growth prospect of the EU as well as
heightening global trade, business and investment volatility.

Apparently, the decision will emerge as a new geo-political and geo-economic epoch
throughout the globe, it said.
The EU is the largest export market and the UK is the second largest Bangladesh-bound
foreign investor and export destination for Bangladesh, worth $3.4 billion, the statement
The jolt from the Brexit may affect Bangladesh, undermining the export growth potential
under GSP facility and remittance earning and spill catastrophic impact on the bilateral
trade and investment relationship above all growing development cooperation for
Bangladesh, it added.
DCCI urged the government to immediately take into account the possible consequences
and take precautionary measures to deal with the developments this regard, also to initiate
focused bilateral discussion with the UK to find alternative way outs and avoid unforeseen
economic menace.
DCCI also urged the government to form a national committee comprising representatives
of trade bodies, trade experts, international trade law practitioners, economists,
researchers, and representatives from concerned ministries and agencies to observe and
report the findings to the government on post-Brexit global economic order.

The whole world is paying its attention on the Brexit issue as it has turned into a topic of
concern where uncertainty looms at a huge degree. Too much question has remained
hung as not much of answers can be derived too soon over the impact of Brexit. The
UK is heading towards a new era where it is supposed to put a barrier on the free
flowing of immigrants from all over the Europe. After an evenly battle over the option to
leave and remain in the European Union, it has been confirmed that leaving EU has
been won by the slightest margin. Soon after the decision to leave EU has been
confirmed, Moodys has changed their stable outlook on the UK to a negative outlook
mainly because of the uncertainty that persists over the future of UK economy after the
Brexit. The credit rating of UK currently stands at Aa1 by Moodys score which is just
below the highest rating marked by AAA. It might drop down by single or more notches
depending on the aftermath of Brexit. A lower credit rating means a higher borrowing
cost and it may come as a blow to the UK economy. It is yet to see whether such doubt
turns into reality. The value of pound also plummeted soon after the revealing of the

vote results. Although it has been marked as an overreaction of the outcome of the
voting, it is yet to see where it leads to eventually.
In another analysis, it has been found that younger generation had more support on
remaining in EU than leaving and older generation had more support on leaving EU
than remaining. Such analysis concludes that UKs majority decision to leave EU
doesnt really represent the true picture of public demand from overall demography.
Such situation creates more tension over the outcome of the decision.
Brexit issue is a concern for Bangladesh too as the UK is the third largest export
destination for Bangladesh. Some changes after the Brexit may affect Bangladesh
economically. Some changes may also come into play over the immigration issue.
Simply, Brexit in a way may change the business strategy of Bangladeshi exporters.
How? Please continue to the second part of this article.
- See more at:
The first blow that may hit Bangladesh as a result of the Brexit is the loss of duty
benefits amounting to over USD 3 billion. Departure from EU by the UK may lead to the
departure of Bangladesh from duty benefits on the export to UK that was inexistent
when UK was part of the EU. The UK is the third largest export destination for
Bangladesh and such loss is quite significant for the country. This might lead to a shift of
products exporting to the UK to other countries where the costs will be lower.
The remittance income may see a downfall that has been generating from the UK for
Bangladesh till date. Out of the total remittance income of more than USD 15 billion,
migrant workers of UK from Bangladesh contributed USD 1 billion. This is the second
largest contributing countries in remittance for Bangladesh. In the recent outbreak the
pound has experienced a diminished value and hence the risk of more downfall exist
which will lead to a lower number of remittance.
The export issue is more concerning than anything for Bangladesh. Bangladesh
exported USD 3.23 billion worth of products in the year 2014-15 which registered 21.28
percent growth in export to the UK from the previous year. Such growth may face a
setback due to the Brexit as more costs will be assigned to exported products with the
absence of duty-free benefits. Among the exported goods to the UK, 90 percent is

covered by readymade garments. It concludes that RMG industry of Bangladesh will be

more affected than any other industry. This industry may look for some different
pathways to tackle the risks.
Bangladesh has been enjoying a great level of benefits from EU bloc in terms of trade.
The apparel industry of Bangladesh has achieved the tag of being the second largest
apparel exporter worldwide due to the duty benefit provided by the EU bloc. If the UK
discontinues such benefit, it will disrupt the smooth flow of export on the part of
Bangladesh. In the present times, Bangladesh enjoys 12.5 percent duty benefit which
results into zero duty on export to EU bloc. The UK was part of the bloc and now its not
which means a risk of increasing duty on export to the UK.
Bangladesh needs to bring itself into a new negotiation with the UK to continue the duty
benefit Bangladesh has been enjoying for some time. Otherwise, it will be a challenge
for Bangladesh to continue the growth in exports.
- See more at:

Brexits immediate impact on

Bangladesh Textile & Apparel
June 28, 2016

UK has decided to come out from

European Union after the historical poll that chose Brexit by 52% to 48%.
Though it shows that the issue has divided the nation, it is almost certain
that UK would be no more in EU. The exit process would take more or less
two years as per the law mentioned in Article 50 of EU. However the impact
has already been emerged in many areas including textile and clothing
The current trade mathematics:
Impact of Brexit on global textile and apparel could easily be understood if
UKs bilateral trade between Bangladesh could be analyzed. It is because
Bangladesh is a textile based county and its foreign trade has more than
87% contribution from textile and apparel.

Table 1: Bangladesh export to UK in comparison to its global export ( Source: ITC,


International Trade Center data shows that in 2015 more than 10% of total
Bangladesh export went to UK. UK being one of the oldest trade partners of
Bangladesh, it is not surprising.
Bangladesh exported more than $3.5 billion to UK which was having on an
average 6% growth for last five years. Among $3.5 billion of total export to
UK, more than $3.23 billion is of RMG goods. Knitwear sector was having 5
% and woven wear was having 10% average growth for last five years. This
data show how important is the UK for Bangladesh trade. UK has been
considered to be a thirst market for Bangladesh and the country has set
higher export target in UK market in the current fiscal year.
ITC data in table 1 show that Bangladesh exported $35.16 billion and for
RMG it was $ 30.12 billion in the calendar year 2015.

Besides Textile and apparel footwear sector is seeing huge growth in the UK.
For last five years the sector was having 25% average growth.
There is a certain impact on Bangladesh export to UK:
Poll Brexit doesnt mean overnight divorce of Britain from EU but many
leaders in EU and UK will push to finish the process within shortest period of
time. Immediate impact of Brexit has already been immersed. The first
impact is significant depreciation of pound sterling. Weak pound means
higher cost of import, means there will be a certain impact of Bangladesh
export to UK immediately. Though all the import payments will rise for UK
and it is a common phenomenon, it is definitely going to affect the current
trade mathematics.
These days, as Bangladesh was British colony, Bangladesh-Britain trade
channel was used for many other European Countries exports and imports.
Increase of import cost for UK against USD and Euro means those channels
will be disrupted. If immediate alternatives were not developed, those export
from Bangladesh will certainly be affected.
UK has many famous retail brands namely Primark, M&S, Asda, Newlook










Bangladesh and then pushing back to other European destinations. This

supply chain also would be disrupted. So, left aside other issues, only
depreciation of pound has great impact on Bangladesh market.
Trade partners should adopt the changes promptly:
With such a great historical move all sectors of Britain is to be shaken.
Britain itself could fall into the risk of further break as Scotland is expected
to seek another independence referendum. Scotland is a pro-European
nation, and more than 75% Scottish wants to be with EU.

Along with the political instabilities, financial issues are also to be taken time
to be settled. As many new policies would be adopted in a short period of
time many changes would come for trade partners of UK. Companies in
Bangladesh working with British companies would keep eagle eye on the
developments. They should keep them prepared for adopting any possible
Bi-lateral relation is very important:
Britain is mainly being separated from UK to regain their national pride and
identity and also to stop huge flow of European and non-European migrants
to the country. Bangladesh community comprises a huge part in British
society. With the emergence of British nationalism, the community will be
under pressure. Many Bangladeshi businessmen who contribute to bilateral
trade and business would find things difficult in coming days.
On the other hand, out of EU when Britain will be reforming its international
relations. That would be very important for Bangladesh. As Bangladesh
currently having a pro-Britain government, it is expected that Bangladesh
will be able to keep the relation intact and will be able to gain trade &
business advantages from Britain.
Table 1 show that Bangladeshi goods require no tariff to enter in UK. It is
because of the EU GSP policy towards LDC countries. Bangladesh should
take immediate action as if those benefits never be disrupted.
Britain is to re-establish its manufacturing strength:
Brexit definitely is going to bring major changes in Britain and also in EU. 28
countries open market with Britain and without Britain must have big
differences. Almost half of UKs global export goes to European countries; it

shows UKs dependency on EU. Many European countries are also heavily
dependent on UK for technology and services.
In a new context where pound is in possibility to come as low as 1.1 against
USD, Britains manufacturing competitiveness will increase. Britain currently
has a trade deficit of more than $163 billion USD which has a great impact
on its economy. Free market mechanism was compensating the deficit. But











competitiveness of local manufacturers and service sector. An industry

favored law and monetary policy would help regaining UKs manufacturing
Bangladesh must follow these changes and prepare itself to identify areas
where it can find its opportunities. There would be many areas where new
trade channels could be opened. Considering Bangladeshi industries change
adaptability, gaining those new opportunities will not be easy. Neighboring
competitors India, Pakistan, Myanmar could take big parts of the new cake.
In 2015 UK exported goods of $465.92 billion and imported goods equivalent
to $629.23 billion. Due to this imbalance pound is like to weaken further.
And central bank of UK is likely to reduce interest rate to zero percent to
increase demand for pound and to encourage keeping money in the market
and to boost business activities.

Assessing Brexit fallout on Bangladesh

The United Kingdom has finally decided to leave the European Union (EU) as per results of a
referendum. Although it is still too early to predict the fallout of the Brexit which means British exit, its
true that the tumbling of the British pound to a 31-year low will affect trading of countries like
Bangladesh. Its true that it could put a negative impact on the Bangladeshi exports to the UK, which is
the third largest export destination for Bangladesh products. Bangladesh would have to go for bilateral
negotiation to avail trade facilities. But then if the Brexit brings positive results for the economy of the
UK it would not hit Bangladeshi exports, but if the exit leads to any adverse impact on the economies
of the UK and the EU then the South Asian country. Bangladesh enjoys duty-free benefits for all
products and flexible rules of origins for readymade garments in the EU. Due to Brexit, Bangladesh
would have to need bilateral agreements to avail the benefits in the UK. If any crisis takes place in the

economy of EU and UK due to Brexit, it will hit hard Bangladeshi export business. Top economists at
British universities have feared that Brexit would damage UKs economy. They thought that Brexit
would cause uncertainty in the markets and pose other economic risks. Although the Brexit is not
directly related with Bangladesh, the country might have to face its immediate impact. The exit of
Britain from EU would not be positive as integration is important this time for the EU economy.
Bangladeshs exports to the UK totalled US$ 3.20 billion in the financial year 2015-16 with US$ 2.90
billion coming from the readymade garments sector. The president of the World Bank has already
warned a British exit from the European Union could have a negative impact on developing countries
across the globe. Brexit is one of the biggest risks to lower and middle income nations since the UKs
economic grounding has a direct impact on stability around the world. The gap between global
commodity imports and commodity exports, which have grown by 6% and 0% this year respectively,
could get much worse as Britain leaves the EU. And uncertainty in global capital markets is bad for the
world economy. On the other hand, the stability of the British economy is really important for the
stability of the global economy and also uncertainty in global capital markets have very negative
effects even on the poorest countries. It is time that Bangladesh makes serious homework on
ramifications of the Brexit and does the needful.

Brexit will have its way with many things, trade one among them.
Countries that do substantial trade with the EU may all be affected differently, but
Bangladesh is bracing for the worst of it.
Bangladesh runs the risk of losing duty benefits on its annual exports of more than $3 billion
to the UK, as Britons voted to leave the European Union sending shocks across the world in
a stunning turn of events.
Apart from exports to the UK, the third largest export destination for Bangladesh, remittance
income from the European country may come under strain as an impact of its departure
from the EU.
In the long run, Bangladeshs economy might take a hit if the current uncertainty in the
global economy persists further.
Britains exit from the European Union (EU) will hurt Bangladesh exports especially the
RMG sector to its markets as it will cast shadow on the exchange rates, fear the economist
and exporters.
In a referendum held on June 23, the UK people decided to leave EU as 52 percent people
voted for exit while 48 cast vote to stay with the union.
The short-term visible impact of the Brexit is devaluation of currency that has already
witnessed an about 10 percent fall. Bangladesh will bear the brunt of the exit as it is the
third largest single export destination for our products, Bangladesh Garment Manufacturers
and Exporters Association (BGMEA) President Faruque Hassan said recently.
As a result, the buyers will try to cut prices and to some extent even to cancel the orders.
In July-May period of the current fiscal year, Bangladesh exports to the UK stood at
US$3.44 billion, of which $3.18 billion came from the readymade garments sector.

A paper discussing the United Kingdoms relationship

with Europe and the impact of Brexit on the British
Executive summary
Capital Economics has been commissioned by Woodford Investment
Management to examine the United Kingdoms relationship with Europe
and the impact of Brexit on the British economy. A referendum is due to be
held before the end of 2017 but it looks increasingly likely that it will occur
before the end of 2016. The latest opinion polls suggest an extremely tight
vote but this could easily change due to, for example, another escalation in
the Greek crisis, further rises in net migration from Europe or an escalation
of the refugee crisis. In addition, the nature and extent of any renegotiation
of the terms of British membership could also be important in determining
the referendum outcome.
Our report covers the economic impacts of the most important elements of
the Brexit debate.
Annual net migration from Europe has more than doubled since 2012,
reaching 183,000 in March 2015. Immigration from the European Union is
currently boosting the workforce by around 0.5% a year. This has helped
support the economys ability to grow without pushing up wage growth and
inflation, keeping interest rates lower for longer.
Whether the United Kingdom gains any powers to restrict immigration from
Europe will depend on its future relationship with the European Union. If
Britain wanted to retain full access to the single market, it may have to keep
the free movement of labour between the United Kingdom and the Union.
But this is unlikely. Policy is far more likely to change to restrict the number
of low skilled workers entering the country and shift towards attracting more
highly skilled workers. This would be a potential headache for low-wage
sectors heavily dependent on migrant labour, such as agriculture, but could

benefit other sectors with a shortage of highly skilled labour. Overall, policy
would shift to be more specifically designed for Britains migration
Read this chapter
Trade and manufacturing
Official trade statistics show that the European Union is the destination for
about half of all British goods exports. The trading links are bigger if we
include the countries that the United Kingdom trades freely with because
they have a free trade agreement with the European Union. These
agreements mean that 63% of Britains goods exports are linked to
European Union membership.
It is highly probable that a favourable trade agreement would be reached
after Brexit as there are advantages for both sides in continuing a close
commercial arrangement. But the worst-case scenario, in which Britain
faces tariffs under most-favoured nation rules, is certainly no disaster.
Exporters would face some additional costs, such as complying with the
European Unions rules of origin, if they were outside the single market.
However, these factors would be an inconvenience rather than a major
barrier to trade. In addition, fears that exporters would be left high and dry
the day after the Brexit vote are unfounded. Under the Lisbon Treaty, a
country leaving the European Union has 2 years in which to negotiate a
withdrawal agreement.
In addition, falling tariffs, the decline in manufacturing and Europes
diminishing importance in the global economy mean we doubt that even the
absence of a trade deal with the European Union would hurt the United
Kingdoms overall exports materially. The benefits of being in the European
Union are smaller than they were a few decades ago, when a Brexit would
have been a far bigger deal. However, the effects will vary across sectors.
Brexit would give Britain a crucial opportunity by allowing it to broker its
own trade deals with non-European Union countries; indeed Britain could
even have a unilateral free trade policy. Non-European Union countries
may find negotiating with Britain easier and quicker than dealing with the
European Unions bureaucratic machine, as Switzerland has shown.

The production sectors in the economy face a more uncertain outcome

than services. The range of potential outcomes is more variable as
production sectors are more dependent on whether or not the United
Kingdom agrees a trading agreement with the European Union and the
nature of any such agreement. The possibility of tariffs on goods exports to
the European Union gives greater downside potential, while the opportunity
to open up trade with other countries or to increase the sectors
competitiveness through greater competition or cheaper inputs gives it
more upside potential.
Contrary to the claims of many authors and commentators, it is probable
that the impacts of Brexit on trade would be relatively small. Moreover, it is
certainly possible that leaving the European Union would leave the external
sector better off in the long run, if Britain could use its new found freedom
to negotiate its own trading arrangements to good effect.
Read this chapter
Financial services and the City
Financial services have more to lose immediately after a European Union
exit than most other sectors of the economy. Even in the best case, in
which passporting rights were preserved, the United Kingdom would still
lose influence over the single markets rules. The City would probably be
hurt in the short term, but it would not spell disaster. The Citys competitive
advantage is founded on more than just unfettered access to the single
market. A European Union exit would enable the United Kingdom to broker
trade deals with emerging markets that could pay dividends for the financial
services sector in the long run.
Read this chapter
Regulation, innovation and productivity
Brexit is only likely to have a limited impact on Britains productivity. The
major potential for improvement comes from increased business
investment which shows little connection with political developments.
Estimates that axing European Union regulations would save Britain a lot of
money exaggerate the true picture as the United Kingdom would still

choose to implement many of them. It would also need to implement the

unions regulations to continue to export easily to the single market.
Reduced regulation might give a small boost to productivity but wouldnt be
a game-changer.
Read this chapter
Foreign investment
Concerns about a drying up of foreign direct investment if Britain votes to
leave the European Union are somewhat overblown. Access to the single
market is not the only reason that firms invest in Britain. Other advantages
to investing here should ensure that foreign firms continue to want a
foothold in the country. It is likely Britain would remain a haven for foreign
direct investment flows even if it was outside of the European Union. Of
course, we could see a period of weak foreign direct investment inflows as
the United Kingdoms new relationship is renegotiated. However, if Britain
is able to obtain favourable terms, then foreign direct investment would
probably recoup this lost ground.
Read this chapter
Public sector
The British government could save about 10bn per year on its
contributions to the European Unions budget if the country left the bloc.
This figure could be higher if either the British rebate was to be threatened
in the years ahead or Brexit was to result in overall faster economic growth.
On the other hand, a little economic disruption and lower migration as a
result of Brexit could offset these savings. The government might also
continue to make some contributions to the union if it wanted to preserve
single market access, it might need to compensate sectors of the economy
and specific regions that currently benefit from European Union handouts
and it may have to sacrifice customs duties income to strike new trade
deals with countries outside Europe.
We expect that Brexit would benefit the public finances, but not to a huge

Read this chapter

Consumption and property market
It seems clear that the City is the part of the British property market that
has most to lose if the United Kingdom opts to leave the European Union. It
is certainly possible to tell a story in which the damage done could be
considerable, but the role of the financial services sector in holding up the
property market is probably overstated, leading us to believe that any
negative impacts will be small, certainly at a macroeconomic level.
We anticipate that the impacts on the property market overall and on
aggregate consumption in the economy will be limited. In the case of the
latter, they may well be positive due to beneficial effects from independent
policymaking on immigration, trade and regulation, as well as savings to
the exchequer (which may then be disbursed in the form of lower taxes).
Read this chapter
Although the impact of Brexit on the British economy is uncertain, we doubt
that Britains long-term economic outlook hinges on it. Things have
changed a lot since 1973, when joining the European Economic
Community was a big deal for the United Kingdom. There are arguably
much more important issues now, such as whether productivity will recover.
The shortfall in British productivity relative to its pre-crisis trend is still over
10%, so regaining that lost ground would offset even the most negative of
estimates of Brexit on the economy. Based on assessing the evidence, we
conclude that:

The more extreme claims made about the costs and benefits of Brexit
for the British economy are wide of the mark and lacking in evidential bases

It is plausible that Brexit could have a modest negative impact on

growth and job creation. But it is slightly more plausible that the net impacts
will be modestly positive. This is a strong conclusion when compared with
some studies

There are potential net benefits in the areas of a more tailored

immigration policy, the freedom to make trade deals, moderately lower
levels of regulation and savings to the public purse. In each of these areas,
we do not believe that the benefits of Brexit would be huge, but they are
likely to be positive

Meanwhile, costs in terms of financial services, foreign direct

investment and impacts on London property markets are more likely to be
short-term and there are longer-term opportunities from Brexit even in
these areas

It is not likely that any particular region or regions of the country

would be more adversely affected by Brexit than the country overall.
Likewise, we do find support for the notion that Brexit would benefit some
sectors more than others, but the range of outcomes for production /
manufacturing industries is probably wider than for services
We continue to think that the United Kingdoms economic prospects are
good whether inside or outside the European Union. Britain has pulled
ahead of the European Union in recent years, and we expect that gap to
widen over the next few years regardless of whether Brexit occurs.

Executive summary
Trade and the manufacturing industry
Financial services and the City
Regulation, innovation and productivity
Foreign investment
Public sector
Consumption and the property market
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Less regulation

Possible tariffs on exports to the

European Union

Savings on European Union


Loss of access to the single market

Ability to strike new trade deals

Damage to the City

Skills-based migration policy

Drop in investment caused by


Table 1: Sources of possible gains and losses from Brexit

Sources: Capital Economics

In this section, we review the studies that have previously estimated the
impact of Brexit on the United Kingdom economy.
Leaving the European Union is a substantial step for any member state to
take. The decision is in many ways a social, cultural and political one, but it
is also one which carries economic implications.
The United Kingdoms potential decision to leave the European Union, or
Brexit, has consumed much debate. The magnitude of the economic costs
and benefits of Brexit cannot be known with certainty before the event. As a
result, a range of estimates have given differing scales and even directions
of the impacts. (SeeFigure 1.)

What does Brexit mean?

It is a word that has become as a shorthand way of saying the UK leaving the European
Union (EU) merging the words Britain and exit to get Brexit.
What is happening ?
A referendum is being held on Thursday, 23 June, to decide whether Britain should
leave or remain in the European Union.
What is the European Union ?
The European Union often known as the EU is an economic and political
partnership involving 28 European countries. It began after World War Two to foster
economic co-operation, with the idea that countries which trade together are more likely
to avoid going to war with each other.
It has since grown to become a single market allowing goods and people to move
around, basically as if the member states were one country. It has its own currency, the
euro, which is used by 19 of the member countries, its own parliament and it now sets
rules in a wide range of areas including on the environment, transport, consumer
rights and even things like mobile phone charges.
With GDP of more than $18,000 bn and a population of more than 500 m, it is the
biggest economy in the world. Member states remain the most powerful actors within
the EU with Angela Merkel, German chancellor, the blocs most powerful leader.
What is a referendum ?
A referendum is basically a vote in which everyone (or nearly everyone) of voting age
can take part, normally giving a Yes or No answer to a question. Whichever side gets
more than half of all votes cast is considered to have won.
Why is a referendum being held?
Prime Minister David Cameron has promised to hold a referendum if he won the 2015
general election, in response to growing calls from his own Conservative party MPs and
the UK Independence Party (UKIP), who argued that Britain had not had a say since
1975, when it voted to stay in the EU in a referendum. The EU has changed a lot since
then, gaining more control over their daily lives, they argued. Mr Cameron had said: It

is time for the British people to have their say. It is time to settle this European
question in British politics.
Who Will be able to vote ?
You are eligible to vote if you are a British, Irish or Commonwealth citizen over the age
of 18 and you are resident in the UK. You may also vote if you are a UK national who has
lived overseas for less than 15 years.
What is the procedure to vote?
It is a similar system to that during other elections. Firstly, if you have registered to vote,
youll have been sent a card telling you when voting takes place and where you should go
to vote on 23 June. On that day, when you go to the polling station you will be given a
piece of paper with the referendum question on it. You then go to a booth, which will
have a pencil in it for your use. You then put a X in the box which reflects your choice
and put the paper into a ballot box
Who wants the UK to leave the EU?
The British public are fairly evenly split, according to the latest opinion polls. The UK
Independence Party, which won the last European elections, and received nearly four
million votes 13% of those cast in Mays general election, campaigns for Britains
exit from the EU. About half of Conservative MPs, including five cabinet ministers,
several Labour MPs and the DUP are also in favour of leaving.
Why do they want the UK to leave?
They believe Britain is being held back by the EU, which they say imposes too many
rules on business and charges billions of pounds a year in membership fees for little in
return. They also want Britain to take back full control of its borders and reduce the
number of people coming here to live and/or work.
One of the main principles of EU membership is free movement, which means you
dont need to get a visa to go and live in another EU country. They also object to the idea
of ever closer union and what they see as moves towards the creation of a United
States of Europe.
Who wants the UK to stay in the EU?

Prime Minister David Cameron wants Britain to stay in the EU. Sixteen members of his
cabinet also back staying in. The Conservative Party has pledged to be neutral in the
campaign but the Labour Party, SNP, Plaid Cymru and the Lib Dems are all in favour
of staying in.
US president Barack Obama also wants Britain to remain in the EU, as do other EU
nations such as France and Germany. As mentioned above, according to polls, the
British public seems pretty evenly split on the issue.
Why do they want the UK to stay?
Those campaigning for Britain to stay in the EU say it gets a big boost from membership
it makes selling things to other EU countries easier and, they argue, the flow of
immigrants, most of whom are young and keen to work, fuels economic growth and
helps pay for public services. They also believe Britains status in the world would be
damaged by leaving and that we are more secure as part of the 28 nation club, rather
than going it alone.
Would Britain be better in or out?
It depends which way you look at it or what you believe is important. Leaving the EU
would be a big step arguably far more important than who wins a general election
but would it set the nation free or condemn it to economic ruin?
Key Arguments for Stay
Foreign affairs:
As part of a 500 million-strong economy, Britain has greater influence over
international matters.
Britain has proved that it can opt out of EU policies it considers counterintuitive, such
as the euro, the Schengen Agreement and enforced migrant quotas.
A union better equips Britain to tackle threats to security, including terrorism and crossborder crime.

Europe provides Britain with billions of pounds worth of investment each year.
Membership in the EU gives us the strength to negotiate favourable trade agreements
with countries around the world.
Free trade within the EU reduces barriers and enables UK companies particularly
small ones to grow.
Millions of jobs linked to Britains membership would be put at risk.
Consumer goods:
The average person in Britain saves hundreds each year thanks to lower prices of goods
and services facilitated by the EU.
Key Arguments for Leave
Foreign affairs:
EU membership limits Britains international influence, ruling out an independent seat
at the World Trade Organisation.
Britain would have more control of its laws and regulations, without risk of having
counterintuitive policies forcefully imposed.
Britains domestic security would benefit more from greater border control than
political union.

Britain contributes billions of pounds in membership fees to the EU every year.

Membership in the EU keeps Britain from fully capitalising on trade with major
worldwide economies like Japan, India and the UAE.
The EU subjects Britain to slow and inflexible bureaucracy, making it more prohibitive
for smaller, more innovative companies.
Improved global trade agreements and more selective immigration would have a
positive effect on the British job market.
Consumer goods:
The average person in Britain lose hundreds each year owing to policies regarding VAT
contributions and agricultural subsidies.
Impact of Brexit on India
Despite being a ludicrous proposition, countries across the world must address the
contingency of a Brexit. If it does happen, it will have wide-ranging repercussions on
every country that is remotely connected with the global financial market. Here are five
ways in which India will be affected:
1. The uncertainty following Brexit: The biggest drawback of the Leave Campaign
is that they have not mapped out the future course of action if Brexit indeed happens.
There is no sound plan regarding Britains future relationship with the EU or any other
specific country within the EU.
If Brexit does happen, global financial market volatility can be readily expected. Markets
across the world will tank. The pound will depreciate against most major economies.
India cannot remain immune to this. Sensex and Nifty will tumble in the short-run.
2. Investment: India is presently the second biggest source of FDI (Foreign Direct
Investment) for Great Britain. One of the main reasons for this is the historic and

cultural ties with the UK that India shares along with the fact that the UK proved to be a
gateway into the rest of Europe. Indian companies that would set up their factories in
the UK could sell their products to the rest of Europe under the European free market
However, if Britain exits the EU, it will not be as attractive a destination for Indian FDI
as before. Having said that, Britain would not want to lose out on capital coming in from
India. Thus, one can expect Britain to try extra hard to woo Indian companies to invest
there by providing much bigger incentives in terms of tax breaks, lesser regulation and
other financial incentives. Further, if Britain is leaving the EU due to the latters
complex bureaucratic regulatory structure, Indian companies can expect a deregulated
and freer market in Britain.
3. Another EU partner: If Britain exits the EU, India will lose its gateway to Europe.
This might force India to forge ties with another country within the EU, which would be
a good result in the long run.
India is already trying to build trade negotiations with Netherlands, France, Germany,
and others, albeit in a small way. Netherlands is Indias top FDI destination as of now. A
Brexit could force India to build trading partnership with other EU nations in order to
access the large EU market.
4. The Commonwealth: With Britain cutting off ties with the EU, it will be desperate
to find new trading partners and a source of capital and labour. There have already been
many proponents of the Leave Campaign that suggest that the UK should look towards
the Commonwealth to forge new alliances.
Britain will still need a steady inflow of talented labour, and India fits the bill perfectly
due to its English-speaking population. With migration from mainland Europe drying
up, Britain would be able to accommodate migration from other countries, which will
suit Indias interests.
Further, Britain is one of the most important destinations for Indians who want to study
abroad. Presently, British universities are forced to offer subsidized rates for citizens of
the UK and EU. With Brexit, however, the universities will no longer be obliged to
provide scholarships to EU citizens, which will free up funds for students from other
countries. Many more Indian students may be able to get scholarships for studying in
the UK.

5. Ties with European Union: With or without a Brexit, it would be in Europes

interest to develop India as a strong trade and strategic partner. Brexit would surely
accelerate this process. Europe needs to counterbalance United States and China geopolitically and would also need to hedge against a slowing China for its economic
For this, Europe would be looking at the fastest-growing major economy in the world
and would need to quickly resolve the pending trade issues with India in order to
develop a lasting relationship.
Thus, even though Britain stands to suffer from leaving the European Union in terms of
reduced trade and a sustained drop in its GDP, the net effect can turn out to be positive
for India.