How to face Brexit: Demand and offer policies

How to face Brexit? Now that the United Kingdom has said goodbye to its colleagues in the European community, these measures take place.

How to face Brexit? Brexit has been a real headache for the European Union and, for Boris Johnson’s own government. Now that the United Kingdom has said goodbye to its colleagues in the European community, what measures will the Johnson government take to alleviate its effects?

Well, on the one hand, we have demand policies and, on the other, policies that affect demand.

DEMAND POLICY

Fiscal measures to face Brexit

Boris Johnson’s predecessor and precursor to Brexit, Theresa May, already urged restrictive fiscal policies during her tenure based on prudence and some economic austerity. These policies were based on an increase in taxes and new social cuts and made it possible to reduce the budget budget, as well as control current spending. As a result, these fiscal rules imposed by May’s government have allowed the country to cushion the eventualities of Brexit.

Monetary policy

By way of contextualization, at the time of Brexit, interest rates were already at historic lows, as a result of the expansionary policies of central banks. A little hopeful outlook for British banks with what would come later.

The 2016 Brexit referendum sent the London stock market reeling. Due to the economic uncertainty that was generated, the yield of the British Bond that same year marked minimums. In order to alleviate the negative effects of Brexit, expansionary credit and liquidity measures (Quantitative Easing) have been carried out. On the one hand, the Bank of England injects liquidity into banks on a massive scale (e.g. in 2016, around 320,000 million euros were injected into banks). On the other hand, the European Central Bank carries out what is called unconventional measures, with a massive bond purchase program. Finally, the interest rate is decided to keep low, 0.75%. As a result, it is intended to increase aggregate demand, including consumption and investment.

Economic Exterior

Regarding foreign economic policies, the contingent policy stands out. Regarding the fishing industry, a grace period of 5 and a half years is established. During this period, European Union countries are allowed to use British waters for fishing, without restrictions of any kind. However, from this so-called grace period, the United Kingdom will definitively abandon the Common Fisheries Policy. This implies access for European vessels to the so-called Exclusive Economic Zone, which extends 200 nautical miles (about 370 kilometres) from the British coast.

OFFER POLICY

Competition policy

With the departure of the United Kingdom from the European Union, 29 new trade agreements were achieved, to replace the 40 agreements that governed the country as a member of the European community. In addition, the trade agreement between the EU and the United Kingdom at the end of 2020 should be considered, granting the United Kingdom “a zero tariff, zero tariffs” when exporting to countries that make up the European Union, as long as the goods are originating from either party. However, more customs procedures and merchandise controls come into force, with more delays at the borders. In this way, the United Kingdom intends to carry out long-term control of foreign competitions in the country.

Financial sector reforms

Brexit has led to a series of ambitious measures in the financial sector, a sector that represents 7% of the country’s economy. Financial experts have seen Brexit as an advantage to require the British country to change the structure of the markets directive. The objective to face Brexit is none other than to reduce costs for companies. These measures are based on generating greater transparency in the market and more protection for investors. A safer and, in turn, the transparent financial system has been achieved, in addition to implementing regulations in areas where there was a legal vacuum. Finally, it is also worth highlighting the improvement in the training of professionals and that investors have been provided with more and better information.

Customs control: another measure to face Brexit

Another of the effects of Brexit falls on border controls. Although the British Government announced that it would delay the implementation of customs controls on imports from the European Union for a further six months (until January 1, 2022), the United Kingdom would be treated as a third country for the purposes of customs. Some changes include:
Possible restrictions or bans on some goods entering the EU from the UK, leading to requiring import or export certificates.
Import and export certificates issued by the United Kingdom are no longer valid. In addition, VAT is applied to the import of goods entering the European Union from the United Kingdom. Exports to the UK, however, will be exempt from VAT.

This may prove to be a blow to consumers, as UK companies could carry out price increases as a result of increased customs controls imposed.

If you want to know more about Brexit and its effects on customs click here!

Stay tuned to our blog to learn more about the international business world!

Marina Díaz

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