What will Britain be like post Brexit?

What will Britain be like post Brexit?

07 Oct 2018

In June 2016, British voters elected to leave the EU. The UK is therefore scheduled to officially leave the EU bloc at midnight on March 30th, 2019, thus ending decades of a relationship that has been, for the most part, extremely beneficial for Britain’s economy.

Many people now wonder what Britain will look like once it has completed Brexit, and how its economy will be affected. In this short article we will look into what’s happening and try to assess possible implications of the separation.

Here are five points that could decide Britain’s future.

1. The terms of the ‘divorce’
Currently, Britain and the EU are in an ongoing “divorce” process, attempting to reach an agreement regarding the separation terms. If no agreement is reached by the deadline, we could be looking at a so-called ‘hard Brexit’, which means that Britain will leave without an agreement, in which case its economy could suffer a much greater blow.  

At first, some people speculated that the EU might want to ‘punish’ the UK, hoping to discourage other members from following suit. However, for now it seems the negotiations are continuing in accordance with expectations. It’s unlikely that Britain will be allowed to continue with the same benefits it had before Brexit, but if it manages to reach the deal it wants, the impact could be mitigated.

Also, there are additional costs to consider. Britain will likely need to pay a hefty sum of money in order to separate from the EU, but how much exactly is yet to be determined.

2. The British pound
There’s no doubt the British pound took a serious hit following the Brexit referendum. As the chart below suggests, the UK currency has somewhat recovered since, but it remains volatile. Anything can happen once the terms of the agreement are published, or if any other factor comes to light. It is also important to remember that a weaker pound means the Brits can buy less*, which could also have a ripple affect across the economy.

GBP/USD October 2018

3. Business relocations
London is a major business capital and many large companies from across the EU have chosen to base their headquarters and branches in it. Now though, some of these businesses may be considering relocation. Banks offer a notable example of businesses that may be considering relocation*. EU regulators have clarified they expect banks to open full-scale operations inside the trading bloc ASAP, and many have already chosen Frankfurt for their alternative EU trading center*. According to Sam Woods, the UK’s top banking regulator, as many as 10,000 British-based jobs are at risk as of the first day of Brexit taking place. International broadcasters like Disney are also considering moving staff and operations into the EU bloc’s borders.

4. New taxes
Brits should brace themselves for a hike in the cost of merchandise travelling from the EU, previously untaxed. Vehicles, medicine, imported foods and drinks are just some examples of products that could cost substantially more once Britain leaves the EU. Alongside a weaker pound, which could impact retailers, restaurants, stores and the economy in general*.

5. Workforce*
UK employers have so far enjoyed an abundance of employees from the EU. Now, some might need to get used to paying more as the supply of workers decreases. This comes at a time when unemployment in Britain is at its lowest in over four decades. Of course, the British government can take some steps that will curb this potential problem, but it will need to act in time to prevent a crisis.

All of these factors and several others, could affect Britain’s economy once Brexit is complete, and quite possibly even earlier. For many years, Britain has been the financial center of the European Union. Will it manage to adapt and hold onto its place in the face of change, or will we now see its economy plunge? Only time can tell for sure.

Of course, for online investors who can trade in any direction, up or down, any price change means risks, but also opportunities.

 

* https://www.bloomberg.com/news/articles/2018-03-27/brexit-is-a-year-away-here-s-what-s-happening-in-the-u-k
** https://www.bloomberg.com/news/articles/2018-03-27/u-k-employers-concerned-about-brexit-migration-restrictions

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