Brexit Essay
Brexit Essay
Brexit Essay
The European Union was established in 1993 and today consists of 27 different countries
in Europe. The roots of the EU go way back to 1957, where a war torn Europe realized that
countries could not possible survive on their own. Countries such as Belgium, Italy, Netherlands,
Italy, Luxembourg, and West Germany united their defense forces and removed trade barriers
and decided to work together (KERA, 2010). In 1973 the United Kingdom joined the alliance as
well. In 1993 the European Union was officially established and in 1999 the Euro was introduced
as the official currency (Euro Dollar Currency , 2012). However Tony Blair, the Prime Minister
at the time decided that the United Kingdom would not accept the Euro if it did not pass the
five-test rule. These tests were in place to keep the U.K.s business safe and secure, the Euro
did not end up passing these rules therefore they did not adopt the Euro and stuck with the pound
(INVESTOPIA, 2017). Fast forward to 2016, and the United Kingdom is considering pulling out
of the European Union. This resulted in the term being coined British Exit, or better known as
Brexit. Brexit was passed by British citizens with a very slim vote of 51.9 in favor and 48.1
against and more than 30 million citizens voting (Hunt, 2017). The reasons for leaving were
quite complicated and very conflicted; however there were some main arguments. The EU as a
whole has seen a 20 percent unemployment rate, and economic growth in the EU has stagnated
(Mauldin, 2016). Many people argued leaving the EU would result in economic collapse not only
of Britain but the EU as a whole, however, willingly being an economy going nowhere did not
seem to be a good solution to solving the problems the UK was facing. Another reason was a rise
of nationalism in Britain, many believed that the EU no longer served its purpose and didnt
allow the UK to function on its own; it felt to most that it was reliant on these other countries
when in reality other countries were leaching off of the UK. Being in the EU also forced
Britain to deal with and ongoing refugee crisis that it does not want to be forced to deal with, the
argument was that immigration is a national issue and not to be delegated by the EU.
Although the U.K. wont actually exit the E.U. until 2019, the United Kingdom has
already begun to experience changes in their economy since they voted to exit the EU in June of
2016. Immediately following the announcement of Brexit, business investments within the UK
began to drop due to the uncertainty of their future. It fell over 1% just within the last three
month of 2016. The value of the pound also dropped 15% and 12% lower than the dollar and the
euro, respectively. It went form from 1.475 to 1.325 dollars per Pound within 24 hours after the
voting results were announced, and has continued to steadily drop since then. The pound falling
in value has had several effects in the Great Britain economy. A positive effect has been that the
UK stockmarket has risen due to many taking advantage of investing in Dollars and then
converting it to Pounds.
Exports have also increased reducing their overall trade deficit. On the other hand, the
decrease in value of the pound has resulted in a decrease in imports since their prices are now
higher. The increase in the sales price of imported products, such as oil, have resulted in the
country experiencing a higher rate of inflation than what would normally be expected. Over the
last five years wages have increased at a higher rate than inflation so UK citizens experienced
virtually no inflation. However, the high rate of inflation, accompanied by a slower increase in
wages, has caused a drop in retail sales in the UK as many have cut back on expenses. Migration
in 2016 also dropped by 50,000 people compared to 2015. 596,000 people entered the UK,
down 24,000 from 2015, while 323,000 exited, up 26,000 form 2015. Many of those who left
were British citizens. The steadily increasing rate of foreign workers in the UK has also slowed
dramatically. It has dropped from 242,000 workers in 2016 to only 126,000 so far in 2017. Net
public borrowing also decreased in 2016 and was expected to continue to decrease. In an effort
to encourage borrowing and boost the economy banks decided to lower their interest rates. So
far, they have been successful as net borrowing has begun to increase once again in 2017. Lastly,
Brexit has had an effect in house prices. Prior to the vote, Great britain experiences about a 4%
increase in house prices per year. Since the vote there has only been a 2% increase.
Due to the exit of Britain from the European Union, many companies and investors will
more than likely evacuate the epicenter of the British-EU separation to avoid as much loss as
possible. These same companies and investors will push capital toward safe-haven markets like
ones in the United States, and in Japan. As a result of this influx of capital to these markets, it
will inevitably lower market interest rates, and raise relative currency values. While some might
view the U.S. Dollar and Japanese Yens increase in value to be a positive thing, it will actually
have the inverse effect. The increase in value for these currencies will have a negative impact on
the export sectors. This is because American-made and exported products will hold a relatively
more expensive price abroad, due to the weaker-comparative value of foreign currencies. This
same thing would hold true for any Japanese manufactured good or service that is exported to a
foreign market. Not only would this increase in currency value have an impact on exports, it too
would have an impact on newly emerging markets wishing to conduct business with the Dollar
or Yen as a vehicle currency. Any of these markets that wish to use these currencies will end up
paying relatively more to obtain them, which will strain their rate of growth. Britain, being one
of the smallest of the economic superpowers of the world (at only 3.9% of the total Global
Economic Output), any negative impact that an action by them would have is immensely smaller
than it would have if it were the United States or China in their position. Even though there are
negative impacts by the occurrence of Brexit, the impacts are quite a bit less significant as we
The push to leave the EU was supported by the UK Independence Party and not the prime
minister. UKIP argued that being a part of the EU was restrictive for the country. EUs primary
initiative is free movement within the region, so UKIPs main argument was centered on
regaining border control and reclaiming business rights. This push by the party has some
potentially devastating effects on the EU. For the extreme right, brexit was first significant
foreign policy victory. This adds fuel to the ideology of far rights that the white race is becoming
extinct, and wanting to put Britain first to maintain it. Britains vote to exit the EU, was
supported by a populist, anti-establishment xenophobia, that is taking the world like a wildfire.
During the same year as Brexit (2016), Germany had taken the spotlight with its refugee policy
due to the amount of violent attacks, Frances Marine Le Pen rose in presidential polls; Austria
came very close to electing far-right leader, and Italy rejected reforms for lack of radicalism,
which forced its leader to resign.Aside from a negative political impact, the economic impact of
brexit is drastic. Trade between EU & UK is substantial to the respective economies. The trade
between both of them account for 306 billion of exports from EU to UK, and 184 billion of
imports. In terms of GDP, EU exports to the UK make up 2.5% of GDP, whereas UKs exports
to EU account for 7.5% of its GDP. The amounts for services are quite large too: EU exports to
UK amount to 94 billion and imports to 122 billion, this creates a surplus for the UK. Taking
into consideration the previously stated transactions between EU & UK, the degree of
dependence in terms of GDP on the UK market is much higher for the smaller states in the EU
that have geographical or historical proximity/relations. Not only are trade and services an
important relation between the UK & EU, Foreign direct investments also amount to a large sum.
EUs FDI stocks in the UK is estimated at 985 billion (8.3% of GDP), however, the UKs FDI
stock in the EU are less than 683 billion (26.6% of GDP). The effects of brexit is likely to leave
a gaping hole of about 9 billion annually. This loss can be offset to a certain extent if the UK
Ever since the decision was made to leave the EU, it is true that the pound dropped from
$1.475 to $1.325 as previously stated. This does drive up the cost of input prices to companies
which in turn make it more expensive to produce.By increasing the input prices, the cost of good
sold will naturally increase. Including the currency drop in strength, the uncertainty with the final
outcome to the negotiation of Britain's future policies will lead companies into a tough spot to
ponder their next move. Unlike the pound, the stocks were not as heavily affected in a negative
light as it is given a value by the FTSE 100. The FTSE 100, Financial Times Stock Exchange
100 Index, includes the top hundred companies with the highest market capitalization. The
hundred companies are listed on the London Stock Exchange and it is seen as a way to gauge the
relative success of companies that are regulated by UK company laws. The importance of the
index is that, as Britains benchmark share index, it had risen above its previous location on the
day of voting. Despite the stock prices, it is should be noted that most of the companies listed
primarily operate overseas rather than in Britain. For the overall effect on corporations, the
answer is that the effects will vary for each corporation. One main reason for such an answer is
that the negotiations are still underway with very few unsure of what is to come. In those
negotiations, there are important matters to Britain such as the availability of foreign workers
and access to the EUs single market. If foreign workers have to relocate due to the finalized
negotiations, then businesses that require a lot of additional help such as restaurants will need to
hire workers to fill in their positions. As mentioned previously, companies might have to relocate
their finance staff. It is estimated that it will be around 10,000 due to one possible change, the
loss of access to the EUs single market. The single market provide numerous benefits such as
free trade. For finance jobs, it provides the benefit of an EU passports that allow for them to
provide services throughout the EU freely. The possible changes are enough that large firms such
as Goldman Sachs, JPMorgan, and Morgan Stanley are going to lessen their risk by planning to
move their jobs to Europe in the coming years. There is also the inverse in that there are
companies that stand to benefit. For one specific example, Dyson reported a sharp increase in
profit as they mainly produce high end houseware items such as vacuum cleaners. Given the low
price of the pound, there will be companies that will thrive overseas. Just like many of the
companies listed in the FTSE 100, the price of exports will be rather cheap. Other businesses
with increasing sales are the alcohol companies, international sales by Paypals research, high
Despite the turbulent times ahead for Britain, there are still companies that seek and have
invested large amounts of time, money, and resources into Britain. The important thing to note is
that they have only done so after they received assurance from the Prime Minister of the UK,
Theresa May, that companies will not suffer any negative consequence from Brexit. Overall the
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