The Economic Impact of Brexit
Even those who are the most oblivious to the current events of the world have heard of the word “Brexit”- a term used to describe the United Kingdom’s referendum to leave the European Union in June 2016. This referendum, which resulted in a slight majority victory for those in favor of leaving the EU, began a still on-going series of events that must eventually lead to the United Kingdom’s separation from the European Union. Such a monumental and unprecedented event is certain to have serious economic repercussions. The economic fallout was a major arguing point before the referendum, and even now, experts are still debating over how leaving the EU will affect the United Kingdom financially. The question is, can anyone really know for certain?
While experts are still evaluating and debating over the potential long-term consequences of Brexit on the UK economy, the vote undeniably caused immediate damage. The Prime Minister who called for the referendum under the assumption that the general public would vote to remain in the EU, David Cameron, resigned when it became clear that the people had voted the other way, sending the ruling conservative party, and therefore the country, into a power vacuum that was eventually resolved with the election of Theresa May. More worryingly, the value of the pound dropped from 1.44 to a low of 1.22 when compared to the US dollar during the initial shock of the referendum’s outcome and the first few months that followed, as well as dropping from 1.31 to a low of 1.11 when compared to the euro, the official currency of the EU. While the decrease in the value of the pound may only directly affect those wishing to exchange British currency for other international currencies, such a decrease is typically indicative of an economic crisis for the UK, leading to a lower standard of living for most of the population. However, there is a chance that the uncertainty of the United Kingdom’s future is a stronger factor than the actual effects of the Brexit decision itself on the economy.
Uncertainty has always been a cause of varying degrees of economic recession, with long periods of uncertainty typically leading to prolonged decreases in economic activity. The unpredictability surrounding the United Kingdom’s future in a post-Brexit environment is just as high as it was before the referendum itself. After triggering Article 50, the EU approved procedure for a nation to leave the EU, Theresa May established a Brexit government department, led by conservative Member of Parliament David Davis, former defense secretary Liam Fox, and former mayor of London Boris Johnson. Davis, who currently serves as Brexit secretary, has since admitted that the government has not made an economic assessment about the potential effects of leaving the EU, something that will not officially happen until 2019, two years after May’s triggering of Article 50. When asked why the government hadn’t assessed the possible economic fallout that could result from such a major decision, Davis stated that he is “not a fan of economic models because they have all been proven wrong,” citing the financial crisis of 2008 as an example. Regardless of whether or not this is true, the lack of an economic assessment from the British government has caused a large amount of uncertainty among the general public, and this may have been the cause of the fall in the pound’s value rather than the effects of Brexit itself.
Unfortunately, the unpredictability surrounding the future of the United Kingdom regarding Brexit seems doomed to continue. In the past month, Parliament voted in a very narrow decision to grant Members of Parliament the right to a “meaningful vote” before any permanent agreement with the EU over Brexit negotiations could be made. This would essentially grant Parliament the ability to reject a deal with the EU if necessary. The possibility of having to renegotiate an entirely new deal, and therefore either rushing through that process or delaying the deadline for the permanent separation from the EU, is creating even more uncertainty than before. Many conservatives in the United Kingdom are also calling for the deselection of the eleven conservative MPs who voted in favor of this “meaningful vote” and therefore voted against their government. In a time where clarification is even more important than usual, the United Kingdom has shown no signs of stating clear intentions regarding its post-Brexit plans, and the absence of this is quite likely to be the leading cause behind the decline in the value of the pound, which is usually a good indicator of the state of the economy itself.
However, while many believed that the British economy would suffer greatly as a result of the referendum, that has not actually been the case. While the value of the pound did fall dramatically in the months after the referendum, the pound has since risen from a low of 1.22 to a current value of 1.34 when compared to the dollar, and the current trend indicates that this value will continue to rise. According to the Office of National Statistics, the UK’s largest independent producer of official statistics, Great Britain’s most recent economic growth is valued at 1.9%, higher than both the United States and France, rather than the initial estimate of 1.8%. As a high economic growth rate is usually directly related to high economic well-being, this statistic indicates that the United Kingdom has not actually been negatively affected in the long run by any Brexit-related events. While the country’s economic future may still be hard to predict, it stands to reason that, as soon as Parliament agrees on a firm plan of action with the EU, the negative effects of uncertainty will be diminished, and the United Kingdom’s economic well-being will continue to prosper.
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