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What’s it:
Brexit, short for “British Exit,” marks the United Kingdom’s historic decision to unwind its deep economic integration with the European Union. Triggered by a closely contested 2016 referendum, where a narrow 51.9% majority voted to leave, this move has sent shockwaves through the UK economy.
In the immediate aftermath, the Pound depreciated, signaling investor uncertainty about the future. The decision also had a ripple effect on key industries, with car manufacturers facing production hurdles due to potential trade disruptions.
Furthermore, it led to a significant relocation of assets, with an estimated $1 trillion moved from the UK to other European countries. These initial impacts highlight the complex economic consequences of Brexit, a process that continues to unfold as the UK navigates its new relationship with the European Union.
Reasons for Brexit
Several reasons explain why Britain decided to leave the European Union for social, political, and economic reasons.
First, immigration is a significant and longstanding problem in the UK. The growing “British identity” view is the reason to support Brexit.
Proponents see leaving the European Union as a solution to a better future. It is thought to result in a better immigration system, improved border controls, a fairer welfare system, a better quality of life, and the ability to control native British citizens’ laws.
Second, supporters cite sovereignty as one of the reasons they opted out. They also see themselves as lacking a European identity. Therefore, Britain’s decisions must be made by the people in Britain, not by the European Union.
Third, the misleading campaign also influenced the referendum results. Ahead of the referendum, a malicious campaign spread. One of them says the UK spends 350 million per week on the European Union. Such campaigns and the political stance of the print media shaped public opinion ahead of the referendum.
Fourth, the European Union has failed to address structural economic problems since the 2008 crisis. This has made the EU economy stagnant. And the supporters don’t want the UK to get caught up in the problem.
Fifth, EU regulation tends to distance Britain from free-market principles. Brexit is the way to build a more market-oriented UK.
Impacts of Brexit
First, on 24 June 2016, the pound sterling depreciated to its lowest level in 31 years. The Pound was also more volatile, reflecting the uncertainty investors feel about the UK post-Brexit future.
Second, Brexit leaves UK banks in an uncertain situation. This is because many of the laws and regulations of banks are set by the EU. In early 2019, it was reported that banks and financial firms had moved $1 trillion worth of assets from the UK to the EU.
Third, during the twelve months ended February 2019, UK car production fell by 15.3% from 145,518 to 123,203. While not the only reason for the decline, Brexit played a significant role. British car manufacturers source components from Europe and export the majority of finished cars to Europe as well.
If it imposes tariffs on imported vehicles for trade with the European Union, UK factories will be disadvantaged. The Society of Motor Manufacturers and Traders (SMMT) estimates the tariff will cost £4.5 billion ($5.5 billion) per year. It is estimated that the industry will lose £50,000 ($63,300) per minute.
Fourth, the cost of living rose by £870 per year after the referendum. Depreciation makes imported goods more expensive, resulting in a 2.9% increase in consumer prices.
Fifth, Brexit makes the UK economy shrink and loses output of about 2.1% of GDP. That’s the equivalent of £350 million per week. The percentage of losses is expected to increase to around 4% of GDP by the end of 2020.
Sixth, Brexit makes the UK must be independent to obtain external funding. The UK withdrew its ownership of a 16% stake in the European Investment Bank (EIB) or around 39.2 billion. Since joining, EIB has provided loans worth nearly €120 billion to the UK for various projects.
