XM -Blog

What Will Be The Impact Of Brexit On The UK Economy?

September 19th, 2019

What will be the impact of Brexit on the UK economy?

For those living in the European Union and particularly the UK, there is little need to ask ‘what is Brexit?’ It’s a topic that has been endlessly debated for more than three years, dividing opinion and resisting any easy solution. Moreover, it’s an economic and political event that will have implications beyond European borders.

Should anyone need a reminder, Brexit is short for ‘British exit’, meaning the UK’s exit from Europe, and was decided by a referendum held in June 2016. In the run-up to the referendum, there were exaggerated predictions from both the leave and remain camps about the impact of Brexit on the UK economy.

Post-referendum, with the UK now having turned its back on Europe, not much has changed. But that’s simply because the UK is still in the EU while the so-called ‘divorce settlement’ is being thrashed out, and the real impact of Brexit on the UK economy will only be felt when all the talks are over and the departure is complete.

Unfortunately, the talks have not led to a withdrawal agreement that is acceptable to Parliament, so there is a distinct possibility of a no-deal Brexit. Whether the UK leaves with or without a deal, there is certain to be an economic fallout – but no one knows how extensive it will be.

This is because Brexit is an unprecedent event, with no lessons from the past to guide us. If there is a withdrawal agreement, there will be a two-year transition period, which will buy time to smooth out the details and make necessary adjustments. But if there is no deal, it would be a precipitous and disorganised departure. Either way, plenty of views have been expressed about the possible effect of Brexit on the NHS, immigration, and imports and exports, amongst other things

How Brexit will affect healthcare is a particularly sensitive area, bearing in mind it was one of the key issues in the referendum. There have been many warnings that it will negatively impact healthcare in the UK no matter which Brexit scenario prevails, and that a no-deal outcome will be particularly damaging.

The fear is that Brexit will undermine staffing in the NHS, because medical professionals from the EU will no longer have freedom of movement. It may also restrict access to medicines and medical equipment because of new trade barriers, and supplies of life-saving medications could be severely disrupted. Another worry is that UK residents in the EU may have to return to the UK to receive treatment, placing further pressure on an already overstretched NHS.

The change in trade terms will not only impact medical supplies. The effect of Brexit on imports and exports will have many repercussions, as more than half the UK’s imports come from EU countries, and nearly half of UK export go to EU countries. Also, currently, Britain trades with the rest of the world as an EU member, meaning any existing EU trade agreements would cease following a no-deal Brexit. Tariffs may hit sectors such as agriculture and food particularly hard, and some foresee chaos at British ports as trade barriers go up. However, the pro-Brexit lobby maintain that UK exports will instead fill the home market and find other destinations, and that EU imports will be replaced by UK domestic production and imports from other countries.

How will Brexit affect immigration? This was another key issue in the referendum, with leavers wanting to curb the number of foreigners entering the country. The end of free movement is likely to see a decline in immigration from EU countries, but if the UK withdraws with a deal, the transition period applies. If not, there will be an immediate end to free movement. Like the potential effect of Brexit on the NHS, any sudden change in the workforce could damage employment patterns.

Beyond the UK, there is also the impact of Brexit on the global economy. Financial markets are driven by events, and Brexit is a significant change that affects currencies, foreign exchange, global investment, and trade relations. The pound has had a volatile ride since the referendum, falling against the dollar and other currencies, and it sunk to its lowest level in three years at the beginning of September 2019.

The exchange rate will continue to follow the twists and turns of Brexit politics, which prompted the Bank of England Governor Mark Carney to comment that the pound is trading like an emerging market currency. Along with US-China trade wars, the impact of Brexit on the global economy will depend on international diplomacy, and in this case whether negotiations in Brussels and the UK Parliament can avoid a no-deal exit.

So, what is Brexit going to mean in the long run? Will the next Brexit deadline – 31 October 2019 – see the UK crash out of Europe, or will there be another extension? Such is the complexity of the withdrawal, anything could happen in the next few weeks. As Harold Wilson, Prime Minister in the 1960s and 1970s, famously remarked: ‘A week is a long time in politics.’

Read also: Expat money management series: how to manage your money as a British expat?