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Economic insights on the BREXIT (Britain's exit of the EU) by Ahmed Al Wadiya

Updated on July 3, 2016
Source

So unfortunately Britain is out! that was kind of surprising and heart-breaking in a way, but respect for the PM's attitude and speech! It shows the true spirit of democracy in a nation. Now it is turn to look into the economic implications of the BREXIT.

As a result, huge impact took immediate effect with the Euro and Great British Pound, the GBP and EUR sharply plummeted overnight where the GBP reached such a rate that has not been witnessed for years as it dropped to 1.3230 against its pair the US Dollar. Although it had a little rise after the PM Cameron speech, but it is still at low levels. Meaning, imports will be more costly to Britain. Economically speaking, assuming we have a perfect market, this should ideally be a temporary effect as exports will likely increase as British products will sound cheaper to foreign buyers increasing the demand for the British Pound. And this demand should adjust the British Pound exchange rate to the equilibrium point. But, we are not in a perfect market, and the situation here begs the following questions: how long will this effect last? what will that equilibrium point be? Will the British Pound ever get back to its past peak? and what financial and monetary policies would the British government possibly adopt to exercise some control over the exchange rate?

Other aspects need to be considered by exiting the EU, as England will likely lose the advantage of free trade where it can export its goods and services to the rest of EU without tariffs, as if it is distributing them within one nation. Plus, the UK has many subsidiaries spread throughout the EU member states, and British citizens employed throughout these member states as well. It is expected that the UK will renegotiate continuing having access to the EU market at worse terms. Especially, the EU would not reward Britain for leaving and encourage other member states of the possibility of choosing the same path England did. Hence, it is unlikely that the EU will give Britain favourable terms. All these factors could negatively impact the economy despite the fact that others claim otherwise.

Those in favour of the BREXIT, on the other hand, believed that the UK will be better off mainly for reasons such as having more sovereignty in setting their own policies and rules separately from the Union, sparing the net contributions paid to the Union for its own uses, and to have more control over the increasing immigration to Britain due to the economic struggles facing the Eurozone, which is claimed to have depressed the wages of British citizens.

So, the question here is: does the opportunity cost of being part of the EU outweigh the opportunity cost of exit? Or in simpler terms, do the benefits of departing the EU outweigh the costs of continuing to be part of the Union? This question can be answered better if we can quantify the impacts of both decisions for comparison. However, generally speaking, the EU would not struggle economically for ever, each market has its bad and good times, and there could be good days to come that would make it seem more lucrative for the UK had it stayed as part of the Union. Otherwise, if we think of the free immigration across the EU member states argument, it could actually be rather an advantage as British citizens would have the option to easily relocate to other member states for possibly more lucrative employment opportunities, alternatively it could more easily attract the talents that would contribute to the prosperity of its economy.

Overall, I feel inclined to say that in unity lies greater strength than in division. Of course, at the end, the degree of the impact depends on how the UK takes it from here. The future of Britain's economy in light of the surrounding economic circumstances will be shaped by the actions and measures to be taken by England to make their decision work.




Sources for the picture and video:

BREXIT Referendum Rigged Before Vote: Is The Fix In? Retrieved June 24, 2016 from http://themillenniumreport.com/2016/06/brexit-referendum-will-be-rigged-the-vote-fix-is-in/

KTN News Kenya. (2016, June 24). UK Prime Minister David Cameron resign after Brexit; he had this to say to the world. Retrieved from https://youtu.be/6WyGmZIKbCg

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