Brexit – How will EU markets react to UK’s final departure

Dec 22, 2020

Despite four long years of preparing for the UK’s departure from the EU, much of the outcome and details are still unclear. Will there be a deal? What are the benefits? What are the disadvantages?

How has Brexit impacted the world so far?

When the referendum results became public in 2016, a so-called “political earthquake” took place. David Cameron, UK’s then prime minister, resigned quickly after, and the British pound suffered astronomically. After Theresa May resigned too, in 2019, new Prime Minister Boris Johnson took office.

Studies suggested that the referendum has pushed UK’s inflation by 1.7% in 2017, which cost approximately £404 for an average British household. It reduced average national income by almost 2%. The economic costs of Brexit were 2% of the UK’s GDP.

What are the main concerns about Brexit?

So far, Brexit has had some negative consequences that led to overall negative market sentiment around the world. One key reason is the fact that Brexit could cancel free trade between the EU and the UK. EU member states do not have export/import taxes or tariffs and treat trading between each other as if they are the same country.

Another important aspect is mobility for EU citizens. It is currently unclear how the UK will handle this when so many EU nationals live and work in the UK. In addition to this, the UK is a top-rated tourist destination. The tourism industry will suffer if tourists will not travel to the UK from Europe freely.

What are the advantages of Brexit?

Despite all the negativity related to Brexit, it does have some advantages. Even without the UK, the EU is one of the world’s largest economy. In addition to this, with the UK gone from the EU, there will no longer be two currencies battling within one Union.

Brexiters argue that leaving the EU can preserve some of the UK’s sovereignty. Some EU policies are considered counterintuitive for the UK, such as the adoption of the euro, the Schengen Agreement, etc.

Final thoughts

Despite some positives, there is no doubt that the UK leaving the EU will cause tensions and difficulties for both sides. Whether a deal or no-deal will occur, the UK and EU still have a long road before their relationship can become as seamless as it needs to be.