The effects of Brexit on the UK economy is an essential area of debate between economists during and after the Brexit referendum or the referendum on UK membership of the European Union. Many economists say that Brexit will reduce the real per-capita income level in the UK because being in the EU positively affects trade.
Others say that Brexit will lead to an end of constant contributions to the EU. This will increase government spending and allow the UK to cut some taxes.
Apart from the entire UK economy, there are many concerns about Brexit’s impact on the GBP, British pound sterling. It is expected that the UK leaving the EU will lead to some challenges in the pound’s sustainability.
Once the UK successfully leaves the EU, the GBP will probably enter a period of revaluation.
How Brexit will affect the UK Economy
The referendum result on whether the UK should leave the EU already led to considerable effects on the UK economy, talking less if Brexit ends up victorious. The results caused the following effects:
- UK inflation increased by 1.7 percentage points.
- The economic costs of the vote were between 2% and 2.5% of the GDP.
- The British national income was reduced by 0.6% and 1.3%.
- Investments by business reduced by about 6%.
- About 1.5 percentage points reduced the employment rate.
These are some of the short-term or immediate effects of Brexit on the UK economy. Many studies also showed a growing uncertainty on the UK’s trade policy because of worries about Brexit. Not only this, but some European firms reduced their new investments in the UK, and the British firms started expanding offshores to the European Union. All of these happened after the referendum.
It is popularly agreed that leaving the EU will have many long-term effects on the UK’s economy. It is said that the UK’s trade will become worse after leaving the EU because being a member of this union usually has a positive effect on trade.
Another study stated that almost all the UK regions are more vulnerable to Brexit than in other countries, which makes us wonder if other countries might not be as hard hit as the UK if they leave the EU.
One study held in 2017 focused on the reductions in migration influenced by Brexit and economic influence. They discovered that there would be a negative impact on the GDP and GDP per capita in the UK. It is also expected that there will be marginal positive impacts on wages in the service sector.
Many surveys also revealed that Brexit would also reduce the real per-capita income level in the UK. In 2017 and 2019, surveys showed that there would be a price of between 1 and 10% of the income per capita and GDP losses of 1.2 to 4.5% for the UK because of Brexit.
Even in 2018, when the Brexit analysis held by the UK government was leaked, it revealed that the economic growth of the country would be contracted by 2 to 8% for a minimum of 15 years, although all of these studies and scenarios depending on the leave and if it is a Hard or a Soft Brexit.
How Brexit will affect the GBP
For the past three years, Brexit has been affecting the pound, and now the pressure is twice as much because of the ongoing pandemic. After the Brexit referendum, the immediate result was a sharp decline in the value of the sterling. Higher volatility is expected as the UK’s withdrawal deal from the EU becomes closer and more feasible.
Even exports and imports have been influenced, as imported goods and holidays became more expensive while exports became cheaper. It is expected that a Soft Brexit will have a better effect on the pound than a Hard Brexit.
Economists and experts have agreed that a softer Brexit will benefit savers and boost the economy. This is because the prospect of it will instill certainty and confidence in consumers and companies in the UK, thereby encouraging higher employment and spending.
After the Divorce bill was announced, the GBP rallied by 0.6% against the US dollar and reached a high level after two months. But, when the Parliament failed to pass a new divorce bill, and Theresa May resigned, the pound sterling dropped significantly in relation to the US dollar, euro, and Swiss Franc.
What Else Affects the GBP
Although Brexit is affecting the British pound sterling negatively, it is not the only factor affecting the currency. The second wave of the coronavirus is also having adverse effects on the pound as the UK is considering a second lockdown.
Interest rates and money printing can also affect the pound either positively or negatively, depending on the economy. An important factor is the current account deficit of the UK’s economy, making the pound vulnerable. A full list of the currencies that can be traded at Accuindex against the GBP can be found here.
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