Is Brexit a good move? This important event is likely to have impact on the Finance world
Topic: Is Brexit a good move?
In 2016, the United Kingdom endured vital events that have cause colossal influences throughout Europe, especially the European Union. The referendum held on the 23 of June 2016, resulting in 52 per cent of the population voting in favour of the UK exiting the European Union. The United Kingdom Referendum was a historic one and the shockwaves were reflected not only in the Europe market but also in the global market. The main reason for Brexit is Economic dysfunction that had been developing since 2008 and the reason of nationalism worldwide since the EU does not comprehend the significant of nationalism, which is another factor that leads to Brexit
Brexit first has created domestic conflict, which could break up United Kingdom, which can lead to another Scottish Independence Referendum. Within the United Kingdom, Scotland is more pro-European Union, whereas England wants to partway with the European Union. As for the United Kingdom, and if England insist on leaving the European Union, Scotland will remain in the EU by provoking another Scottish Independence Referendum to leave the United Kingdom. Effect of Brexit is that it will trigger Scottish independence referendum in which if the Scotland vote to leave the Union may destabilize the UK constitutional settlements with potential impact on Northern Ireland. This due to the fact that Northern Ireland is amongst the most persuasive supporter of the campaign for the United Kingdom to remaining in European Union (Lynn 2016). Ireland is not the only nation that may suffer. European leaders understand that Brexit may weaken the association that is existing in serious trouble over the matters like migration and lead Euro to catastrophe.
EU’s Dependency upon the UK
. The mistake was made when the option to remain in the EU was rejected. Brexit is an adverse threat for the UK, even though the extent of the damage is based on the dealings that would occur over the next half of 2017. The complexity is that there is a negative implication to UK membership and it will revoke the policy that made the UK join the EU community. Therefore, Brexit is not a good idea because of the economic and financial effect.(Aslund 2011)
The political establishment of the United Kingdom is ill suited to make hard trade-due to the fact Britain have build a competitive manufacturing which makes its economy strong. The UK’s options in forms of European Union Association,addition, the European Union depends more on Britain’s contribution in creating effective foreign policy and migration. Europe’s connections to America might be stressed because of Brexit sinceIn
Effect of Brexit on Interest Rates
Brexit will affect the interest rate, where the British pound and share prices which in turn will creates trouble in the economic markets, the pound, and share prices. After the Brexit referendum, the pounds fell drastically, and ever since, the UK economy has been almost 14 precent lower in relation to the US dollars, and 11% lower in relation to Euros than it was prior to referendum. The decline in pounds benefited exporters but made the foreign holiday costlier for British tourist (Stonehem 2016). Currencies expert says that the pounds is susceptible to volatility in the coming months until a greater lucidity with regards to UK Brexit deals in realized. The pounds might be weak but the investors’ trust is evaluated by UK share prices, and the UK stock market depicts a growth during that last summer.
Effect of Trade
The Financial Times Stock Exchange (FTSE) 100 Index grew by 15 percent in the last referendum. Much of this may be connected to the decline in pounds. As firms’ profits are reported in the US dollars, when converted back to weak pounds, they may automatically grow. Many expert anticipates an economic depression after the Brexit and they do not take into consideration the likelihood of compensation actions by the bank of England in the awaken of Brexit vote. After the referendum, the bank of England took measures to enhance its economy, specifically, the reduction in interest rates from 0.5 per cent to 0.25 per cent in August 2016 (Lynn 2016). The reduction I the cost of borrowing from 2009 takes the UK rates to a new low record. The rates are not likely to increase soonest.
The UK has been for a long time running a trade deficit, implying that it relies upon imports more than its exports, and that both imports and exports have been boosted by the week pounds (Stonehem 2016). UK exports and imports declined by four hundred million to two hundred million pounds respectively, which leaves the trade deficit in goods and service constantly, fixed from December 2016 at 2 pounds. Nevertheless, inclusive of the oil and other unpredictable commodities, the underlying tendency in trade in goods is broadening of the deficit.
The European Union has in turn became an ever-growing significant part of the west foreign and security policy, whether it focuses on the nuclear deals with Iran; the treats of Islamic terrorism, or the imposition of sanction against terror attacks. Without Britain’s contribution to European Union, it will be risky for the rest of the EU community to manage its operations across the world, and they are open to risks from terror attacks
One of the aspects of Brexit is regarding the UK’s future trade plans. These include a broader economic objective, export, and the primary motives of achieving Brexit. It is evident that many companies are reducing the business operation while funding cycle, peer-to-peer loans websites for small enterprises, and the size of lending is almost 10% lower than the level it was before Brexit took place (Plummer 2016). With regards to export, the effect of Brexit leads to growth in flight bookings and the headlines on NetEase website, which is a Chinese website, which depicts a growth in the economic trend. As much as it is intricate to evaluate the overall effect of Brexit on exports, it is least to recommend a top prize is approaching. The competitiveness of the British export industry has not enhanced as much as there is a decline in sterling pounds.
The research conducted by the economist Gideon Rose (2016) provided data on price statistics, and recommended an annualised inflation because Brexit surpassed the 2 percent target rate by the Bank of England. This research also proved that the currency depreciation leads to a growth in market shares, specially for the states like the United Kingdom that compete mostly on non-price aspects such as the standards and client services.
The new Prime Minister, Theresa May made some recommendations with regard to fiscal stimulus, even though the budget deficit is now at 4 percent of Gross Domestic Product. On the 14 July, the Bank of England shocked the market by holding the interest rates at 0.5 percent, which was contrary to a reduction that many experts had anticipated. A prospect of decline is approaching, as the economy stunts; it will in the short term require all the support it can receive.
Unemployment Rate and Immigration
The unemployment rate has been on the decline over the past five years as the UK recovered from the 2007 – 2008 financial crisis, which led to two million job losses. The average wage grew at a fast whereas the rate of inflation was slow and even thought this gap is closing, this could be a signs of reduced income. From September 2016 to January 2017, the average wage grew by 2.3 percent as compared to past year (Rose 2016). That was a drastically decreased unlike the 2.6 percent as depicted in the last three months ending on December 2016. In the meantime, the inflation rate is now at 1.8 percent, up by 0.2 percent from 1.6% last month while the real income is growing at 0.6 percent. This effect will be experienced in the housing market where, the UK housing price also grew in February 2016 by 4.55 percent as per the nationwide and by 5.1 percent according to Halifax. Housing demand is helped by the economy, which keeps on performing well with growing job opportunities. However, the rate of housing prices is growing at a slower rate, but still endured a 50 percent increase in value since spring 2016. The outlook for the market is not known, with the countrywide forecast of 2 percent growth in UK prices over the course of the 2017.
The net migration for the UK declined to two hundred and seventy – three thousand by September 2016, illustrating a decline by four hundred and ninety thousand from the previous year. The Office for National Statistics claimed that it was the first time in two years when the equilibrium was reached between the numbers of people coming and leaving Britain to be under three hundred thousand people. Immigration forecasted to be five hundred and ninety-six thousand in which two hundred and sixty-six thousand were EU citizens, two hundred and fifty-seven thousand are non-EU citizens, and seventy-one thousand are British citizens. Nevertheless, output in the construction industry in entirety depicts a growth. Some firms depict that the House building has slowed to a six-month low as costs have soared, due largely to a weaker pound.
From the general analysis, it is evident that the UK voters’ decision to exit the EU not only spark a debate on whether the Brexit will have effect on the worldwide economy, but also the effect will adversely be realized on UK economy. From economic factors, Brexit is a bad decision since it takes Britain lawmakers out of the diplomatic talks with both the EU and across North Atlantic. The political establishment of the UK is ill suited to make hard trade-offs and thus, the impact of Brexit is that the United Kingdom will not suffer the most economically when it leaves EU but the worst mistake was made when the option to stay in the EU was rejected.
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