Brexit is a referendum that took place on June 23, 2016. where British citizens were asked to vote whether the United Kingdom should remain the member of EU or not. Leaving the European Union is not a mere vote, but a question of national and social identity that will transform both Britain and EU forever! The referendum was a real shock for the European Union since the UK was the first country that wanted to leave it. The total results showed that England and Wales voted for leaving. Scotland and Northern Ireland voted for staying within the Union (leave won by 52% to 48%). So, global financial markets crashed and the pound dropped to the lowest since 1985.
Why does Britain want to leave the EU?
The first reason is – economics. Opponents of the EU consider it a dysfunctional economic entity dealing with serious economic problems since 2008. The second reason is the sovereignty. There is an issue of growing distrust in multinational, trade, financial and trade organizations, such as IMF and NATO. Brexit supporters believe that these institutions no longer serve their purpose, so they fear of losing control. The immigration crisis in Europe only made things worse. The third reason is political elitism. Brexit was the screaming vote against the established parties, politicians and business leaders. Also, against their incompetence and recklessness, and the contempt for their values and interests.
UK vs. EU
Britain’s relationship with EU has always been very complex. Although it was an original EU member from the start (since 1973.), it preserved control over its borders and currency refusing to be a part of the Eurozone. After the economic crisis in 2008, UK government became skeptical about the benefits of staying in the Union. Especially considering the fact that they have a very strong economy. They believe that freed from burdensome EU regulations, Britain would attract greater investment and improve its economy. Of course, if they have an access to the Single market. Although it may sound like a good chance for improvement, EU would try to discourage other members to do the same, underlying the UK as a bad example. Britain doesn’t embrace fully opened borders with Europe. Yet, according to EU rules, any citizen of the EU has the right to live and work in another member state. Brexit supporters think that migrants can abuse the housing system and in-work benefits. According to their statistics, about $40 000 000 dollars annually go to migrants’ home countries due to child benefits. Even if their children don’t even live in the UK. They believe if they leave EU they’ll have more control over the number of migrants that can pass their borders.
EU without Britain would be weaker for sure. This will especially reflect on the foreign policy, and also on the balance of power within Europe (for example, economic policy of Germany). With Brexit, the positions of politicians supporting withdrawal from the EU will strengthen in other EU countries as well. For example, Le Pen has been calling to leave euro and the Schengen regime. In all this mess one thing is certain – that EU is facing the deepest crisis since its founding. And this heavy situation has revealed unfathomable economic differences between Northern and Southern Europe.
Soft vs. hard Brexit
These terms are related to the terms of UK’s departure from the European Union.
Hard Brexit – implies UK’s refusal to compromise on the issues of free movement of people, in order to have access to the Single market.
Soft Brexit – implies to remain a member of The Single market and allow the free movement of people.
What is the current economic situation?
The consequences that Brexit left on UK economy and economic growth turned out to be better than expected.
– The current account deficit improved towards record levels in the third quarter.
– GFK’s consumer confidence index rose up in December but it’s still down.
– High street Christmas sales are 0.1% lower than the last year, but on the other hand, online sales increased 19%.
– The inflation experienced the highest rate since October 2014.
– The bank of England has increased its economic growth forecast to 1.4 % for this year, but cut expectations to 1.5% for 2018.
The impact on the Forex market
The impact on the Forex market will be fully visible in the years to come, but these are some of the monetary visible effects.
The value of the pound
With the lowest value since 1985. the day after the referendum the FTSE index 100% dropped to 8%, but then gradually increased to the value it reached previously that year.
When Theresa May announced that the UK would begin with formal Brexit negotiations from 1.30 euros, the value of the pound fell to 1.09 euros in October. Then it fell again when May suggested leaving the Single market. By January 12, it regained some value back being worth 1.14 euros.
The falling pound increased import costs for manufacturers and made holidays for British tourists more expensive. But on the other hand, Britain became a cheaper and more accessible tourist destination for overseas tourists. Ryanair, for example, records a considerable increase of overseas tourists traveling to London, Leeds, Liverpool etc.
It’s hard to predict the course of the currency and the possible changes in the market. There’s nothing else to do except to observe the economic events across the globe, and to pay attention to the warning ones.
Gold and precious metals
They turn to hold better value at times of turmoil, making them a more tempting investment in the future.
What can we expect?
As far as business investment is concerned, it is expected to experience a slowdown due to political and economic uncertainty. Consumer spending growth is expected to improve, but slowly due to previous strong rates. A weaker pound will push up import prices and the spending power, as inflation rises. The service sector will remain positive in 2017, but without high investment levels. Slow growth means high public borrowing in the years to come. But there is still room to stimulate public investment while keeping the public finances in the longer term. UK trade prospects will turn to faster growing non-EU markets mostly in tradable services where the UK has a considerable power.
Brexit – pros and cons
Although the Brexit referendum date was declared a year ago, it still cannot be claimed for sure whether it would be better for UK to stay or leave the EU. Both options have pros and cons, and these are just a few of them.
Economy – OECD analysis implies that the independent British economy will lead to the loss of £ 2.200 by 2020 and the loss of 950 000 jobs. The weak pound will be beneficial for UK exporters, bad for tourists and import. Also it would be possible to continue renegotiating trade deals with EU partners regardless of the membership
Security – the results of the Remain campaign imply the benefits of international cooperation, sharing intelligence and the applying arrest warrants. The Leave campaign wants to restrict the control of who enters the country, who can be removed and on what terms.
World power – If Britain stays in the European Union it means a free and independent attitude (that’s where Let’s take back control slogan comes from). If it stays, it would mean more influence in economic and political matters than it would have on its own.
To conclude, no one really knows how the Brexit process will work, and it could take up a couple of years to complete exit negotiations. The terms of Brexit will have to be accepted by 27 national parliaments, and this can take a while. EU law still applies to the UK and it must be obeyed until UK ceases to be its member. On the other hand, although it has to abide EU treaties and laws it cannot participate in decision making.
Will other members follow the UK’s example in leaving the EU? The truth is that most members are highly dependent on the EU, unlike Britain. For the economies of the most European countries leaving the EU would mean a rough struggle to survive outside the union.
However, Britain’s exit will deeply affect British economy, immigration policy, and it will take years for the full consequences to become clear. A triggered chain of events will be felt all around the globe, and it will push both Britain and the European Union into a prolonged period of instability that will essentially change the future of Europe. Finally, the most important aim in Brexit negotiations is to ensure a non-violent withdrawal, to maintain political stability and to protect trading and investment interests.