Brexit

Brexit refers to the combination of Britain and Exit that signifies the withdrawal or exit of Britain from the EU or European Union. The residents of Britain voted for the departure of Britain from the EU and split these votes amongst the constituent nations of the U.K. for asking for the stay of Wales and England and the exit of Northern Ireland and Scotland.

Brexit impact has affected multiple economies, not just the U.K.'s economy. Although its after-effects seem to have stabilized, it remains to be seen if this smooth and low volatility environment will prevail for long. Once the negotiations get deeper and more information comes out in the media, all are almost bound to see explosive reactions across economic, political, and financial centers.

• Brexit means the blend of Britain and the Exit. It indicates Britain's departure from the European Union (E.U.). 
• The British residents voted for Britain's exit from the E.U. They divided the votes amongst the U.K. constituent nations to demand that Wales and England stay and Northern Ireland and Scotland withdrawal.
• Major big companies needed to estimate the idea for a business unit in a major Indian company, U.K. Tata Steel. 
• They had to rethink selling the U.K. unit. Moreover, even a few other companies have had to determine their business ideas.

Brexit, short for "British exit," refers to the United Kingdom's decision to leave the European Union (EU). This historic event unfolded as a result of a referendum held on June 23, 2016, in which the majority of UK citizens voted in favor of leaving the EU.

Whether you liked the news or not, you may have come across this word of late – Brexit because the larger-than-life-announcement made may sound like a terrible thing happened like a bomb blast or a midway disappeared airplane into a journey. But, in reality, it is not that bizarre. Brexit explained that Great Britain left the European Union (E.U.) earlier part of the E.U. So if you like to use another fancy word, you can say that Brexit is the opposite of Bremain.

The primary reasons behind this momentous decision were concerns about sovereignty, immigration, and economic matters. Proponents argued that leaving the EU would restore the UK's ability to make independent trade deals and control its own immigration policies. Opponents, on the other hand, highlighted the potential economic risks and uncertainties associated with this separation.

After years of negotiations, the UK officially departed from the EU on January 31, 2020, entering a transition period during which the two sides established their new relationship. This period ended on December 31, 2020, marking the full completion of the UK's withdrawal.

The Brexit timeline had significant repercussions, affecting trade, travel, and a myriad of other aspects of life for both the UK and the EU. Its long-term impact continues to evolve and shape the future of the UK's relationship with its European neighbors.

In 1967, formed the European Community (E.C.) This economic project in Europe existed before the E.U. was established; six years later, the U.K. joined them. That was created to overcome World War II, so trade binds different nations and thus can prevent future wars and bring cooperation.

Since then, many things have happened, and in 1992 the members of the E.C. signed the Maastricht treaty, which led to the formation of the E.U. The focus was to establish a single common currency for the member nations. Economic trade and cooperation were also an important part of the E.U. However, the U.K. wanted a modification in this area of the agreement. They tried to keep their currency (GBP – Pound Sterling) and not incorporate it with the common money. Earlier, each country in Europe had its own currency – the French- Francs, the Germans- Deutsche Mark; the Italian – Lira, and so on. While these nations agreed on a common currency, the U.K. opted out of this clause but desired to be part of the E.C.

The E.U. was formed in 1993, and nine years later, the 'Euro' was established as the common currency among the E.U. member nations. The E.U. evolved such that member nations became like a 'single market' where trade/goods, services, and people were freely (without tariffs) able to move from one country to another like all nations were a single country.

Multiple causes converged, leading to the historic decision to exit the EU, as expressed in the 2016 referendum. The outcome reflected a complex interplay of economic, political, and social factors. Let us discuss the causes in detail that created a shockwave of Brexit impact throughout Britain and other countries.

• Sovereignty Concerns: Many in the UK felt that the EU's bureaucratic structure limited the country's ability to make its own laws and regulations, eroding national sovereignty.
• Immigration Worries: The free movement of people within the EU allowed for increased immigration, which some believed strained public services and contributed to economic pressures.
• Economic and Trade Tensions: Proponents of Brexit argued that leaving the EU would grant the UK more control over trade agreements, allowing it to strike deals tailored to its interests.
• Global Outlook: Brexit supporters saw an opportunity to forge closer ties with countries outside of the EU, capitalizing on the UK's historical global reach.
• Uneven Benefits: Concerns arose that the benefits of EU membership were not evenly distributed across the UK, with some regions feeling left behind.
• Political Divisions: Deep-rooted political divisions and party politics played a role, with the Conservative Party divided on the issue and the UK Independence Party (UKIP) pushing for a referendum.

It decided to hold a referendum in the U.K. on June 23rd, 2016, and those eligible to vote. While the media, notable people in business, and political experts were calm and confident, they believed that the U.K. would not vote to move out of the EU. However, the people who were the voters having a real say in things to come did the opposite and shocked the whole world. Whether they knew what they were doing or not is a different topic to discuss, but in reality, they had voted 52% for 'leaving' the E.U. as opposed to 48% to 'stay/remain.'

No. The E.U. has 28 members since the U.K. was voted out of the E.U. On June 23rd, 2016, they had two years to leave and negotiate several things before leaving. So, you know, it is not as if they are being boxed out of a match and walked out! The laws of the E.U. still govern the U.K.

Still, The U.K. has two years. The former Prime Minister, Theresa May, has mentioned that the exit process will fully flow from 2017 onwards. Meanwhile, negotiations on trade, immigration, etc., will do the rounds. What is likely to be the outcome no one is aware of, but it is safe to assume that Britain and the E.U. can lose out in some areas and gain in others – they both may take the best out of the agreement to benefit their nation(s). To make things worse, given that there are 28 members in the EU, of which the U.K. is one, 27 have to agree on the terms of the U.K.'s exit.

Currently, no one is aware of whether Brexit is good or not. If anyone claims they do, it is a lie. Before the referendum, many 'knew' that Brexit would not happen until it did! Let us try to understand the possible reasons why the people of England voted for them to leave the E.U.

• That did not mention this earlier, but each member nation of the E.U. pays an amount to the E.U. annually to continue their membership. Regarding the U.K., the amount is approximately $12 billion (converting it to dollars – about £9 billion). It may be even more in Sterling Pounds now since the historic vote has depreciated a lot. So, this big annual commitment can be one possible reason for electing 'leave' to spend domestic spending. That would also be able to reduce its budget deficit.

• Immigration is another factor. London is the financial capital of Europe, and there are people from different nationalities working in the U.K., not only in London. Many of these would-be immigrants who work probably live there – they are probably residents of the U.K. as they may have lived for five years in the U.K. One of the many principles laid out while forming the E.U. was being free members to freely move and live in another E.U. nation without the barriers of getting a visa. It is believed that almost 1 million people migrated to the U.K. due to free labor laws. Britain also provided child benefits and thought many of these migrants were transferring that money to their children who were not living in the U.K.

There might be many other reasons why the voters made such a choice. Of course, one could just be voting for fun! But, believe it or not, quite many voters said that if given a chance to re-vote, they would have voted for the 'stay' campaign since they did not know the Brexit impact.

Regarding the long-term impact according to the Brexit timeline, it is not easy to mention if anyone is convinced about anything yet. As we said earlier, no one knows. But we have already seen the short-term consequences: -

• The value of the U.K.'s currency plummeted to extreme lows. The GBP has been collapsing ever since making the word about the referendum. In hindsight, it was a possible clue we could say about the fear of an actual Brexit apart from crowded currency trades. Here is a chart indicating how much the Pound Sterling flatten. One only expected a drop if Brexit happened, which was not expected!

source: bloomberg.com

• Stock markets across the globe shoot down due to panic selling. Not a single stock market was spared in the process. The U.S. Treasury yield dipped to lows not seen for a long time in the bond markets and tumbled below 1.50% on the 10-year bond. Whereas the ten-year German Bund fell into negative territory. Gold had a massive rally post-Brexit, and all other commodities were slashed. Not to mention that the Pound Sterling had a dramatic fall versus the U.S. Dollar and Japanese Yen in particular. So anyone buying stocks anywhere in the world got an opportunity to 'buy the dip' as so-called 'experts' say!

• Another issue is that the U.K. consists of England, Northern Ireland, Wales, and Scotland. Brexit was the 'leave' vote of all four. Still, Scotland and Northern Ireland had voted to continue with the E.U. Scotland felt it unacceptable to be pushed out of the E.U. since they had voted for the 'stay' campaign. It is now likely that they will have a second referendum to vote to stay in the E.U. Northern Ireland has the choice to move for another referendum to stage their will to continue in the E.U. So, now only England and Wales have been voted out of the E.U.!

• The English economy is not in a good frame. Interest rates have been low, with the policy rate at 0.5% for quite a long, inflation subdued, and growth. However, Brexit has caused uncertainty as their economy flows forward or backward. The rumors have indicated that a Quantitative Easing program may be on the cards if the U.K.; weakens. On the other hand, if Brexit eventually strengthens the U.K., they could be on the edge of higher rates soon affecting mortgages.

• Britain lost its sovereign credit rating of being an AAA nation. They were downgraded to A.A. with a negative outlook by S&P and Aa1 with a negative outlook by Moody's, two leading credit rating organizations. That makes it expensive to raise government debt and, in the process, leads to a higher hurdle rate of interest the deeper we go down the risk ladder.

• Rumors have also stated that France, the Netherlands, and several others may opt for their referendum, taking a cue from Brexit. That is distressing because the E.U. may be at stake if member nations opt out of it.

• Just when so many thought that Brexit had caused a collapse in global growth, harmed Britain's economy, and so on, markets have stabilized. After the initial pounding in stock markets worldwide, these markets have touched record highs of late. Right from the S&P 500 to the BSE Sensex, we have seen record highs being connected, implying that the repercussions of Brexit fears are no more, whether this conclusion is true or not.

• Many big companies have to determine their plans for a business unit in the U.K. Tata Steel, an Indian major, had to reconsider its plans for selling its U.K. unit. Several other companies have had to evaluate their plans.

• Students from abroad who are studying in the U.K. may also be affected. That may be part of the immigration reduction campaign mentioned earlier. In addition, the students may have to pay a higher fee to be international students. Visa restrictions may also add to their woes, given that the U.K. has some of the most prestigious universities like the University of London, where the London School of Economics (LSE) is a part, and several other universities may also get impacted apart from the students due to their reasons. Currently, more than 1,00,00 students outside of the U.K. are studying there.

These pros and cons reflect the ongoing debate and complexities of Brexit's impact on the UK, touching on sovereignty, trade, and the broader economic and political landscape. Let us discuss them in detail through the points below.

Pros

• Brexit proponents argue that leaving the EU restores the UK's ability to make independent decisions and laws without EU influence.
• The UK can now set its own immigration policies, giving it more control over who enters the country.
• The UK has the freedom to negotiate its own trade agreements with countries outside the EU, potentially securing more favorable deals.
• Brexit allows the UK to forge new global alliances and trade partnerships beyond the EU.
• The UK no longer has to contribute to the EU budget, resulting in financial savings.

Cons

• The process of leaving the EU introduced economic uncertainty, and trade disruptions continue to pose challenges.
• Trade with the EU now involves customs checks and potential tariffs, impacting businesses that rely on the European market.
• The UK's access to the single European market is diminished, limiting the ease of trade with EU member states.
• Some industries, like agriculture and fishing, face significant changes and challenges post-Brexit.
• The UK's role in EU decision-making and its influence on global affairs are diminished.

The article is a guide to Brexit definition. Here we explain its causes, relationship with the EU, the vote, consequences, and pros and cons in detail. You may also have a look at the following economics articles for further learning: -

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