Posted on: 19th Jul 2016
Still wondering what the pundits have their money on when it comes to the effects of Brexit? Here’s a quick rundown as the dust slowly begins to settle:
First of all, the vast majority of economists and FX pros believed all along that if the UK left the EU, a sharp drop in the pound would be inevitable. And they weren’t wrong – even down to the stark prediction of a plummet to a 30-year low of $1.20. It happened, but it also began a slow but steady bounce back after the dust had settled. It may be a far cray from its pre-vote highs, but the damage isn’t turning out to be quite as severe as expected.
As of March 2015, annual net immigration in the UK had doubled to 183,000 in less than three years. But while those in the leave camp were opposed to such figures, immigration has actually helped keep interest rates low by bolstering wage growth and supporting the country’s economy. Exactly how the Brexit will affect immigration remains to be seen, given the way in which the UK would be forced to renegotiate its terms and policies with the EU. Interestingly, despite the leave camp’s arguments having centred almost entirely on immigration, Mr. Johnson – the UK’s new Foreign Secretary – has now also gone on record to say the UK’s policies with Europe on immigration, travel and free labour movement won’t be affected.
Trade and Manufacturing
Somewhere in the region of half of all UK goods exports are purchased by EU nations. When incorporating the countries that are also involved in the EU’s free trade agreement, this increases to a whopping 63% of all goods Britain exports. Even in the event of Brexit, it is highly likely that a trade agreement will be reached to ensure that things remain beneficial for both the UK’s exporters and those buying the country’s goods. However, it’s impossible to rule out new tariffs and restrictions that could make it more difficult or less profitable for the UK to do business with EU nations. The UK will have two years to reach and finalise a deal after officially filing its EU divorce with Article 50.
Investors had been ripping money out of the UK like never before the Brexit vote – tens of billions being wiped from the map. However, it’s largely agreed that the likelihood of foreign nations suddenly and permanently writing Britain off as a prime hub foris unlikely to say the least. Even if they don’t like what’s going on right now, it will only take a strong roadmap from the newly-installed cabinet to send things in entirely the opposite direction. Of course, it’s all a big unknown until it happens – the upside being that the Armageddon scenario doesn’t for the time being seem to have played out.